Home » The LED Toy Company has a hot new toy called Dabbdo that it sells in two markets. On the cost side the firm has fixed costs of \$150,000 dollars…

The LED Toy Company has a hot new toy called Dabbdo that it sells in two markets. On the cost side the firm has fixed costs of \$150,000 dollars…

The LED Toy Company has a hot new toy called Dabbdo that it sells in two markets. On the cost side the firm has fixed costs of \$150,000 dollars monthly. In addition, its variable costs are MC = AVC = \$25 per toy. Assume that the LED Toy Company can engage in third-degree price discrimination and its goal is to maximize its profits.

The monthly demand in Market 1 where P1 is price in dollars is:

P1 = 55 – Q1, where Q1 is the quantity in thousands of the toy sold in market 1 monthly.

The monthly demand in Market 2 where P2 is price in dollars is:

P2 = 35 – 0.5Q2 where Q2 is the quantity in thousands of the toy sold in market 2 monthly

(a) (4 pts.) How many toys will be bought and sold in each market monthly?

ANSWERS: In Market 1: ___________ thousand ; Market 2:     ___________ thousand

(b) (3 pts.) What price will be charged in each market?

ANSWERS: Price in market 1:  ________ ; Price in market 2:  _________

(c) (3 pts.) And what LED’s monthly profits be?

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