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Consolidated Sugar company sells granulated sugar to both retail grocery chains and commercial users (e.g., bakeries, candy makers, etc.). The demand function for each of these markets is:

Retail grocery chains: P1 = 90 - 4q1

Commercial users: P2 = 50 - 2q2

where P1 and P2 are the prices charged and q1 and q2 are the quantities sold in the respective markets. Consolidated's total cost function (which includes a "normal" return to the owners) for granulated sugar is

TC = 25 + 10(q1 + q2 )

a) Identify Consolidated's total profit function.

b) Supposing  that Consolidated is effectively able to charge different prices in the two markets, what are the profit-maximizing price and output levels for the product in the two markets? What is Consolidated's total profit under this condition?

c) Assuming that Consolidated is required to charge the same price in each market, what are the profit-maximizing price and output levels? What is Consolidated's total profit under this condition?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M937556

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