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In: Economics

Telsave is one of the mobile phone service providers in the region. It offers different calling...

Telsave is one of the mobile phone service providers in the region. It offers different calling plans for different types of users, mainly individual plan and business plan. Telsave’s marginal costs and average costs of providing the calling service are both $5 per hour.

The demand for mobile services by individual users and business users are as follows:

Individual users  QI= 9000-100PI

Business users  QB=6000-50PB

where QI and QB are, respectively, total calling hours made by individual users and business users;  PI and PB are, respectively, the calling rate per hour for individual users and business users.

  1. Suppose Telsave can price discriminate between two types of customers. Calculate Telsave’s mobile calling rate per hour for each customer class, output (i.e. total calling time made by all users) and profit levels.                                                

  1. Calculate Telsave’s calling rate per hour, output (i.e. total calling time made by all users) and profit levels if there is no price discrimination.                     

  1. Compare the results obtained in part a and part b. Explain which pricing strategy Telsave should choose, and discuss whether the consumers are better off under this strategy.

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Expert Solution

Rahul Sunny answered 2 years ago
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