Maji Mazuri Water and Sewerage Company limited is the only water provider in Mjini city. The company supplies water to two distinct markets; domestic and commercial users.
The demand for the company’s product in the two markets is represented by the following equations;
Q1= 101 – 0.5p1
Q2= 160.4 – 0.2P2
where Q1= output sold to domestic users
Q2= output sold to commercial users
P1= price charged to domestic users
P2= price charged to commercial users
The unit cost of the company is given by the function
C = 160 + 20Q + 18Q2
The total demand fpr the company’s output is given by the equation; Q = 200-4P.
Required
(a) The profit maximising level of output of the two markets.
(b) Price to be charged in the two markets.
(c) The amount of profit the firm would earn if it sold the product at a single price in the two markets and if it discriminates the price charged in the two markets.
(d) The price elasticity of demand of each of the two markets at the equilibrium price and quantity
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