Question
Tasty Inc. sells table salt to both retail grocery chains and commercial users (e.g., bakeries, snack food makers, etc.). The demand function for each of
Tasty Inc. sells table salt to both retail grocery chains and commercial users (e.g., bakeries, snack food makers, etc.). The demand function for each of these markets is:
Retail grocery chains: P1= 1808Q1
Commercial users: P2= 1004Q2
where P1and P2are the prices charged and Q1and Q2are the quantities sold in the respective markets. Tasty's total cost function (which includes a "normal" return to the owners) for salt is:
TC = 50 + 20(Q1+ Q2)
(a) Determine Tasty's total profit function.
(b) Assuming that Tasty Inc. is effectively able to charge different prices in the two markets, what are the profit-maximizing price and output levels for the product in the two markets? What is Tasty's total profit under this condition?
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