A monopolist serves market A with an inverse demand curve of P = 12 – Q....

A monopolist serves market A with an inverse demand curve of P = 12 – Q. The marginal cost is constant at $2. Suppose the monopolist uses a two-part tariff pricing. What price does the monopolist set? What is the entrance fee? What is the deadweight loss? What is consumer surplus?

Expert Solution

In a two part tariff, the monopolist equates P =MC and then charges the entire consumer surplus as the entry fee with MC being the per unit fees.

P = MC

12 - Q = 2

Q = 10

Consumer surplus = area above the price line and below the demand line = 1/2* (12-2) 10 = $50

Therefore, the monopolist charges $50 as the entrance fee and $2 as per unit price. The deadweight loss is 0 in this case as the entire surplus goes to the monopolist.

Rahul Sunny answered 2 years ago

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