Question 5

Question 5 Brawndo Corp- sells its product, Brawndo, as a monopolist in Philadelphia and Chicago. The demand function for Brawndo in Philadelphia is given by Dp(p) = 200 2p and in Chicago it is 00(1)) = 200 p. Brawndo Corp. has a single factory where it produces the Brawndo that it sells in the two cities for a total cost given by the function C(q) = 0.5912. 1. Suppose that Brawndo Corp. can charge different prices in the two cities as consumers have no way of acquiring Brawndo from the other city. What price should Brawndo Corp. set in each city? 2. Unhappy with price discrimination, the guardians of the republic decide to force Brawndo Corp. to set the same price in Chicago and Philadelphia. What price will Brawndo Corp. set and what happens to the quantity sold in each city? 3. Keeping the assumption that the price must be equal in the two cities, what is the price that maximizes total surplus (consumer surplus plus monopoly prot) in this economy