Chapter Review 583

to substitute for v, in the V function and then maximize with respect to Vi and -ii. |

5. A monopolist supplies two markets, one at home, the other abroad. The demand functions are i/i = 10 - pi. <): = 5 - 0.5p:

where q\ denotes home sales and c/i foreign sales. The firm's total-cost function is

la) Find its profit-maximizing output and prices (no arbitrage between the markets is possible).

(b) Suppose now that price regulation is imposed in the home market, in the form of a maximum price of %b. What is the effect of this on prices, outputs, and proti!'.' Illustrate and explain your results.

Chapter 13

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