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In: Economics

Suppose the demand functions facing a wireless telephone monopolist are QdL=100−200P for each low-demand consumer and...

Suppose the demand functions facing a wireless telephone monopolist are QdL=100−200P for each low-demand consumer and QdH=120−200P for each high-demand consumer, where P is the per-minute price in dollars. The marginal cost is $0.02 per minute. Suppose the monopolist offers a menu of two-part tariff plans, with one plan intended for each type of consumer. Suppose too that for any per-minute price PL in the low-demand plan, the fixed fee in the low-demand plan leaves a low-demand consumer with zero surplus; that the number of minutes in the low-demand plan is capped at the number of minutes desired by a low-demand consumer at that plan's per-minute price; and that the high-demand plan has a per-minute price of $0.02 per minute and a fixed fee that leaves the high-demand consumer approximately indifferent between the low- and high-demand plans. Suppose that there are 100 high-demand consumers and 400 low-demand consumers. Will the monopolist's profit be higher when the per-minute price in the low-demand plan is $0.07 or $0.12? Instructions: Round your answers to 2 decimal places as needed.

a. Suppose the monopolist's per-minute price in the low-demand plan is $0.07.

Profit = $.

b. Now suppose the monopolist's per-minute price in the low-demand plan is $0.12.

Profit = $.

Suppose the demand functions facing a wireless telephone monopolist are

          QdL=60−200P

for each low-demand consumer and

          QdH=160−200P

for each high-demand consumer, where P is the per-minute price in dollars. The marginal cost is $0.10 per minute. Suppose the monopolist offers a menu of two-part tariff plans, with one plan intended for each type of consumer. Suppose too that for any per-minute price PL in the low-demand plan, the fixed fee in the low-demand plan leaves a low-demand consumer with zero surplus; that the number of minutes in the low-demand plan is capped at the number of minutes desired by a low-demand consumer at that plan's per-minute price; and that the high-demand plan has a per-minute price of $0.10 per minute and a fixed fee that leaves the high-demand consumer approximately indifferent between the low- and high-demand plans. Suppose that there are 200 high-demand consumers and 400 low-demand consumers. Will the monopolist's profit be higher when the per-minute price in the low-demand plan is $0.15 or $0.20?

Instructions: Round your answers to 2 decimal places as needed.

a. Suppose the monopolist's per-minute price in the low-demand plan is $0.15.

    Profit = $.

b. Now suppose the monopolist's per-minute price in the low-demand plan is $0.20.

    Profit = $.

Solutions

Expert Solution

Rahul Sunny answered 13 hours ago
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