A firm produces and sells a product in both the domestic and foreign market. The market demand functions are given as Q1 = 1200 – 10P1 (Domestic market) and Q2 = 800 – 10P2 (foreign market) where Q1 and Q2 are the quantities sold in the respective markets at prices P1 and P2 respectively. The firms total cost function is given by TC = 0.05Q2 + 10000 and Q = Q1 + Q2
a) Determine the quantities and prices that maximize the firm’s profits. (5 marks)
b) What is the maximum profit for the firm? (5 marks)
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