Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000
Question:
QE = 4,000,000 100PE and QU 1,000,000 20PU
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.
a. 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?
b. 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?
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