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Suppose a monopoly firm is selling computers in two countries, A and B. The market sizes of the two markets are the same. The
Suppose a monopoly firm is selling computers in two countries, A and B. The market sizes of the two markets are the same. The demand function of a representative customer in country A is given by QA DA dAPA, DA > 0, d > 0 while the demand function of a representative customer in country B is given by = QB DB dB, D > 0, d > 0 The production cost of each computer is c, where 0 < c < min{DA/dA, DB/dB}. There are no other costs. 1) The firm uses a uniform price in the two markets. What are the optimal price, quantity, and profit? (7 points) 2) The firm uses a third-degree price discrimination. What are the optimal prices, quantities, and profit? (7 points) 3) Show that the profit in 1) is less than the profit in 2). (6 points)
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