A monopolist has to decide how to price its product in two markets that are separated geographically by a national border. Demand in the two markets is:

Market A:

1 million consumers who each have maximum willingness to pay of $40 for one unit.

Market B:

1 million consumers who each have maximum willingness to pay of $30 for one unit.

The monopolist's total cost is TC = 25(QA + QB), where QA is the quantity sold in market A and QB the quantity in market B.

so its marginal cost is $25 for each unit regardless of where it is sold.

a) What are the prices charged, total quantity of product shipped to each market, and total profits under the following two conditions:

I. The markets are separated so it can maintain separate prices in the two markets.

II. The border is opened to free trade so that it has to charge one price for both markets.

b) How much would the firm be willing to pay to stop the border being opened to free trade?