### Computing profit maximizing price and output level

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##### Reference no: EM1367874

A high-end lamp monopolist operates in the Mid-West where the demand for lamps is given by Q1=200-P1. Producing one lamp costs 10 per unit.

a) Derive the profit maximizing price and the profits at this price.

b) What is the demand elasticity at this price?

Suppose now that the monopolist has the opportunity to expand to the East Coast.This would entail launching an advertising campaign at a cost of 1000,a one time expense. The demand on the East Coast is given by Q2 =160-3P2.The per-unit cost of selling lamps on the East Coast is identical to the cost of selling them in the Midwest.Suppose first that,because he is thinking of selling from his website,the monopolist must charge the same price in both markets .

c) What is the total demand when the monopolist charges a price P?

d) Derive the profit maximizing price and the profits at this price in the case where the monopolist must charge the same price in both markets. Would you recommend the monopolist to expand to this market? Now suppose that the monopolist will sell through a network of distributors,and can charge different prices on the East Coast and in the Mid West.

e) What price would the monopolist charge in the Mid-West?What price would the monopolist charge in the East?What are the total profits?Would yo recommend the monopolist to expand in this case?

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