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In: Economics

A monopolist faces 300 customers divided into 3 different groups: 1. High-Demand customers each have a...

A monopolist faces 300 customers divided into 3 different groups:

1. High-Demand customers each have a demand function given by

QH = 18 - P.

2. Medium-Demand customers each have a demand function given by

QM = 16 - P.

3. Low-Demand customers each have a demand function given by

QL = 14 - P.

There are 100 customers of each type (NH=NM=NL=100).

The marginal cost of producing (one unit of) the product the firm is selling is constant at MC = $4. There is no fixed cost.

1. Determine the optimal two-part tariff for this firm and the resulting profits (it can only select one two-part tariff that is applied to all customers).

2. Do the same for NH=NL=50 and NM=200. Explain briefly the difference between the results in (1) and (2).

Solutions

Expert Solution

Rahul Sunny answered 3 months ago
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