Question
The Gourmet Coffee company sells packs of Nespresso coffee capsules in two adjacent states. The demand functions in these markets are: Market 1 (State A):
The Gourmet Coffee company sells packs of Nespresso coffee capsules in two adjacent states. The demand functions in these markets are: Market 1 (State A): Q1 = 210 - 3P1 Market 2 (State B): Q2 = 120 - 2P2 where P1 and P2 are the prices charged and Q1 and Q2 are the quantities sold in the two markets. The company produces all coffee capsules in one location according to the cost function: TC = 1/4Q^2 + 12Q + 150 where Q =Q1+ Q2, is the total output produced and sold. (Assume that quantities are expressed in units of thousands.) Assuming that the firm can effectively charge different prices in the two markets, calculate the profit maximizing prices and outputs in the two markets. Also, calculate optimal profit earned by the firm.
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