Ann McCutcheon is hired as a consultant to a firm producing ball bearings. This firm
sells in two distinct markets, each of which is completely sealed off from the other. The
demand curve for the firm’s output in the first market is P_1=160-8Q_1, where P_1 is the
price of the product and Q_1 is the amount sold in the first market. The demand curve
for the firm’s output in the second market is P_2=80-2Q_2, where P_2 is the price of the
product and Q_2 is the amount sold in the second market. The firm’s marginal cost curve
is 5+Q where Q is the firm’s entire output (destined for either market). Managers ask
Ann McCutcheon to suggest a pricing policy.
a. How many units of output should she tell managers to sell in the second market?
b. How many units of output should she tell managers to sell in the first market?
c. What price should managers charge in each market?
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