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Segmentation Suppose that the fast-food industry in Edmond is monopolistic and John Smith is running the only McDonald's restaurant in town. He conducted market research and found out that demand for his BigMac is: q = 100-5p, where p is the price of a BigMac and q is the quantity. The cost of making one BigMac is 1. Derive the profit function and call it 11. 2. What is the optimal price? Call it p. (Hint: The optimal price is the price that allows John to earn the most profit.) 3. what is the optimal profit? Call it It'. (Hint: The optimal profit is the maximum profit John can earn.) Research also shows that the Edmond market includes two different segments, namely Segments 1 and 2, and John decides to serve each segment independently. This means that he will sells the BigMac to consumers in Segment 1 at price pi and those in Segment 2 at price pr. Demand of the two segments are: 50-3pi and g 50-2p2, respectively. (Do you notice that q-g1 +2? Do you know what it means?) 4. Derive the profit functions for Segments l and 2, and call them n, and 112, respectively. 5. What is the optimal prices in these two market segments? Call them by pi and pz. 6. What is the optimal profits that John can earn from Segments 1 and 2? Call then li and 111. 7, show that John earns more profit (in total) i segmenting the market. Important: This assignment is individual work. Any sign of cooperation will result in a zero credit. Show your work. Make sure your hand writing is readable. No credit for just giving the answers

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