Show all your calculations. Telstra is a monopolist. Suppose it operates at the market with demand...

Show all your calculations.

Telstra is a monopolist. Suppose it operates at the market with demand P = 10 – Q and has the following cost structure: MC=AC = 2. Draw the market demand curve and the marginal cost curve on the graph with Q on X-axis. (Include a large and accurate graph).

a. Suppose Telstra is only allowed to charge a single price per unit of their services. Derive the marginal revenue and draw it on your graph. Calculate the equilibrium price, output and profit for Telstra.

b. If Telstra acts as a single price monopolist, calculate consumer surplus, Telstra’s profits and deadweight loss. Indicate these areas on the graph.

c. Now suppose Telstra is able to charge a two-part tariff. This consists of P – a price per unit of services, and, F – a fixed fee for the opportunity to buy the service. What is the optimal two part tariff (P, F) for Telstra? Calculate the producer and consumer surplus and the deadweight loss when Telstra uses a two-part tariff. Illustrate your answer on the graph. Which situation does Telstra prefer, the acting as a single price monopolist or using a two-part tariff.

d. Suppose that now Telstra can identify each consumer’s willingness to pay and thus decides to perfectly price discriminate. What will be Telstra’s output and profits? Calculate the new consumer surplus, producer surplus, and deadweight loss. Show your answer on the graph.

Expert Solution

Rahul Sunny answered 2 years ago

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