3. George’s Seafood sells its clam chowder in Boston and New York. George’s has estimated that the...

Question

3. George’s Seafood sells its clam chowder in Boston and New York. George’s has estimated that the demands in these two markets are respectively: (i) QB = 10, 000 − 1, 000PB for Boston; and(ii) QNY = 20, 000 − 2, 000PNY . Quantities are litres of clam chowder per day. The marginal cost of making a litre of clam chowder in George’s facility is $1. (a) Suppose charges the same price in both markets. How much does George’s Seafood produce and what price is charged? What are George’s profits? What are the consumer and producer surpluses in this situation? (3) (b) Now suppose that George’s Seafood changes a different price in Boston and New York. What are the profit-maximizing prices that George’s should set in the two markets? How much chowder is sold per day in each market? What profit does George’s make in each market? (4) (c) Given you answer in parts (a) and (b), explain why George’s Seafood has higher profit when charging different prices in each market (2) (d) Are consumers in Boston or New York better off or worse off with different prices in each market or the same price in each market? Does the answer make sense? Explain (2) (e) If George’s Seafood is able to perfectly price discriminate then how much should it produce in each market? Explain (2)

Komalavalli · Accepted Answer

Question 3
a)
Q = 30,000 – 3000P		----------- (1)
P = (30000 – Q)/3000
TR = PQ
TR = (30000Q – Q2)/3000
MR = (30000 – 2Q)/1500
MC = 1
Equilibrium condition 
MR =MC
(30000 –2Q)/1500 = 1
30000 – 2Q =1500
30,000 – 1500 =2Q
Q =28500/2
Q=14250
Substituting Q =14250in P
P = (30000 – 14250)/3000
P = 15750/3000
P =5
Therefore George’s seafood produces 14250 units of and the price charged was $5 per unit.
ATC = TC/Q = 1
TC = Q
Profits = TR –TC
Profits = 5*14250 –14250
Profits = 57,000
Consumer surplus = ½*(30,000-14250)
		= ½*15750
Consumer surplus =7875
Producer surplus = 7875
b)
QB = 10, 000 − 1, 000PB
QNY = 20, 000 − 2, 000PNY
First we look in to Boston market		
QB = 10, 000 − 1, 000PB
PB = (10,000 –QB)/1000
TR = PQ
TR = (10,000Q –Q2)/1000
MR = (10,000 – 2Q)/1000
Equilibrium condition
MR = MC
(10,000 – 2Q)/1000 = 1
10,000 – 2Q= 1000
11,

3. George’s Seafood sells its clam chowder in Boston and New York. George’s has estimated that the demands in these two markets are respectively: (i) QB = 10, 000 − 1, 000PB for Boston; and(ii) QNY =...

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