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1. Kiwi Inc. dominates the wholesale chicken market in New Zealand. Its production cost is: long-run average cost LAC=long-run marginal cost LMC=$2 per pound and
1. Kiwi Inc. dominates the wholesale chicken market in New Zealand. Its production cost is: long-run average cost LAC=long-run marginal cost LMC=$2 per pound and demand is given by P = 6-2Q, where P denotes price per pound and Q denotes output (in millions of pounds).
- a)Determine Kiwi's optimal output, price, and profit (presuming it faces no other competitors). (3 points)
- b)Suppose Kiwi Inc. conducted a market survey and found that the New Zealand wholesale market for chicken can be divided into two segments with the demand functions given by P1= 12-6Q1 and P2 = 3-3Q2. If Kiwi Inc. is able to discriminate the price between these two market segments and resale is impossible between the two segments, what price should Kiwi Inc. charge for each market segment? What is the total optimal profit Kiwi Inc. can obtain? (5 points)
Hint: Total profit=profit from market 1+profit from market 2.
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