Pricing with market power review questions

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? 
If BMW charged the same price in both markets, we substitute Q = Q
E
 + Q
U 
into the 
demand equation and write the new demand curve as 
Q = 5,000,000 - 120P, or in inverse for as 

P

5,000,000
120

Q
120
. 

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Chapter 11: Pricing with Market Power 
167
Since the marginal revenue curve has twice the slope of the demand curve: 

MR

5,000,000
120

Q
60
. 
To find the profit-maximizing quantity, set marginal revenue equal to marginal cost: 

5,000,000
120

Q
60

20,000
, or Q* = 1,300,000. 
Substituting Q* into the demand equation to determine price: 

P

5,000,000
120

1,300,000
120




$30,833.33.
Substituting into the demand equations for the European and American markets to 
find the quantity sold 
Q
E
= 4,000,000 - (100)(30,833.3), or Q
E
= 916,667 and 
Q
U
= 1,000,000 - (20)(30,833.3), or Q
U
= 383,333. 
Substituting the values for Q
E
, Q
U
, and P into the profit equation, we find 

= {1,300,000*$30,833.33} - {(1,300,000)(20,000)) + 10,000,000,000}, or 

= $4,083,333,330. 
5. A monopolist is deciding how to allocate output between two geographically separated