Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets, Bangladesh and Sri Lanka. Demand for Bicycles in these two markets is given by the following Functions: Bangladesh Q1 = 12 – P1 Sri Lanka Q2 = 8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) a) Determine the company’s total profit function. Also, (i) What are the profit maximizing levels of price and output for the two markets? (ii) Calculate the marginal revenues in each market. b) Now consider two cases: (i) Company is effectively able to price discriminate in the two markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging the same price in the two markets what are the profit maximizing levels of price, output, and the total profits? c) Analyze, with graphs, the two alternative pricing strategies available to the company
Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets, Bangladesh and Sri Lanka. Demand for Bicycles in these two markets is given by the following Functions:
Bangladesh Q1 = 12 – P1
Sri Lanka Q2 = 8 – P2
Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is
C = 5 + 2 (Q1+ Q2)
a) Determine the company’s total profit function. Also,
(i) What are the profit maximizing levels of price and output for the two markets?
(ii) Calculate the marginal revenues in each market.
b) Now consider two cases:
(i) Company is effectively able to price discriminate in the two markets. What will
be the total profits?
(ii) Suppose the company does not engage in
c) Analyze, with graphs, the two alternative pricing strategies available to the company.
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