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Suppose Gillette makes razors and blades. The marginal cost of producing blades is 1 and assume the marginal cost of producing razors is 5. Gillete has a monopoly in the razor market, but the blade market is competitive.There are two types of consumers, lumberjacks and Abercrombie models. Each type wants to buy one razor. The demand for blades for lumberjacks is:

and models is:

Ql(P) = 6 ? P Qm(P) = 7 ? P

(a) If Gillette does not use a tiring strategy, how much would they charge for blades? How much would they charge for the razor? How much profit would they make?

(b) Suppose Gillette uses a tiring strategy and makes their blades so they only fit in the Gillette Razor. Assume they charge $3 for blades. How much would they charge for the razor? How much profit would they make?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M9472197

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