Question
Dupont invented and patented Kevlar, a superstrength synthetic fiber. It has a number of end-use applications, including tire belts, bullet-resistant vests, cables, aircraft components, and
Dupont invented and patented Kevlar, a superstrength synthetic fiber. It has a number of end-use applications, including tire belts, bullet-resistant vests, cables, aircraft components, and so on. Dupont charged different prices to different end-users and included a contractual provision: if the buyer resells Kevlar to a third party for a different use, then the buyer must pay Dupont the difference between the list prices for the two end uses. Suppose the elasticity of demand for Kevlar (Market 1) for end use in aircraft components is 1.3 and for end use in tire belts (Market 2) is 5. The marginal cost for Dupont is roughly constant at $5 per unit output. What price should Dupont charge for each end use?
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