Assume you are the Director of Marketing for ABC LTD, a firm that produces a new product called African Light. Your company sells to two distinct geographical markets- Madina and Haatso. ABC LTD is described as a monopolist and has the possibility of discriminating between its Madina and Haatso Markets. In order to derive the maximum profit from the production process, you engaged the services of an Econometrician, who estimated the demand functions for both Madina and Haatso to be: Q1 = 24 – 0.2P1 Madina Q2 = 10 – 0.05P2 Haatso Where Q1 and Q2 are the respective quantities of African Light demanded in the Madina and Haatso markets and P1 and P2 are their respective prices (in GH¢). If the Total Cost (TC) of ABC LTD for producing African Light for these two markets is given as TC = 35 + 40Q, where Q =Q1 +Q2. i. What profit will ABC LTD make with and without price discrimination? ii. What business advice will you give in respect of practicing price discrimination or selling a uniform price? iii. If price discrimination is the option to implement within the context of elasticity of demand, what pricing policy should be implemented in each market to raise total revenue?
Assume you are the Director of Marketing for ABC LTD, a firm that produces a new product called African Light. Your company sells to two distinct geographical markets- Madina and Haatso. ABC LTD is described as a monopolist and has the possibility of discriminating between its Madina and Haatso Markets. In order to derive the maximum profit from the production process, you engaged the services of an Econometrician, who estimated the demand functions for both Madina and Haatso to be: Q1 = 24 – 0.2P1 Madina Q2 = 10 – 0.05P2 Haatso Where Q1 and Q2 are the respective quantities of African Light demanded in the Madina and Haatso markets and P1 and P2 are their respective prices (in GH¢). If the Total Cost (TC) of ABC LTD for producing African Light for these two markets is given as TC = 35 + 40Q, where Q =Q1 +Q2. i. What profit will ABC LTD make with and without price discrimination? ii. What business advice will you give in respect of practicing price discrimination or selling a uniform price? iii. If price discrimination is the option to implement within the context of elasticity of demand, what pricing policy should be implemented in each market to raise total revenue?
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.13P
Related questions
Question
Assume you are the Director of Marketing for ABC LTD, a firm that produces a new product called African Light. Your company sells to two distinct geographical markets- Madina and Haatso. ABC LTD is described as a monopolist and has the possibility of discriminating between its Madina and Haatso Markets. In order to derive the maximum profit from the production process, you engaged the services of an Econometrician, who estimated the demand functions for both Madina and Haatso to be:
Q1 = 24 – 0.2P1 Madina
Q2 = 10 – 0.05P2 Haatso
Where Q1 and Q2 are the respective quantities of African Light demanded in the Madina and Haatso markets and P1 and P2 are their respective prices (in GH¢). If the Total Cost (TC) of ABC LTD for producing African Light for these two markets is given as TC = 35 + 40Q, where Q =Q1 +Q2.
i. What profit will ABC LTD make with and without price discrimination ?
ii. What business advice will you give in respect of practicing price discrimination or selling a uniform price?
iii. If price discrimination is the option to implement within the context of elasticity of demand, what pricing policy should be implemented in each market to raise total revenue?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning