Question
Please help on this question: A producer with market power is required (by regulation) to set a single price for a product sold in two
Please help on this question:
A producer with market power is required (by regulation) to set a single price for a product sold in two geographically separate markets. Both markets are described by linear demand curves. At the optimally chosen uniform price, the producer supplies the same output to both markets. At that price point, the demand in market A is more inelastic (so steeper when viewed with price on the vertical axis) than it is in market B.
If the producer is allowed to set different prices, then she should: a) lower output in both markets.
b) raise output in both markets.
c) raise output in market A, but lower output in market B.
d) lower output in market A, but raise output in market B.
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