Problem 1 [50 points] Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by: QF = 4,000,000 -100 PE and QU = 1,000,000 - 20 Pu, where the subscript E denotes Europe and the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. 1. What quantity of BMWs should the firm sell in each market, and what should the price be in each market? What should the total profit be? [25 points] 2. If BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equilibrium price, and the company's profit? [25 points] Problem 2 [50 points] A monopolist is deciding how to allocate output between two geographically separated markets (East Coast and Midwest). Demand and marginal revenue for the two markets are: Pg = 15 - Q1 MRg = 15 - 2 Q1 P2 = 25 - 202 MR2 = 25 - 4 Q2 The monopolist's total cost is C = 5 + 3(Q1 + Q2) . Determine the price, output, profits, marginal revenues, and deadweight loss in the two following situations. I. The monopolist can price discriminate. [25 points] Il. The law prohibits the monopoly to charge different prices in the two regions. [25 points]