Question

In: Economics

A monopolist knows that there are two types of consumers, “high demand” (H) and low demand...

  1. A monopolist knows that there are two types of consumers, “high demand” (H) and low demand (L) types. Inverse demand for each consumer of the two types is p = 50 − qL and p = 100 − qH . 60% of consumers are of the L type. Marginal cost is zero.

    a) Find the optimal price if the firm can only set a single price. (One way to do this is to pretend that there are 6 consumers of the L type and 4 of the H type, then construct a total demand curve, then calculate.
    b) Suppose that the firm can set a fee for purchasing any amount, plus a price per unit. Explain, using a diagram, how the firm can earn more from this strategy than from using a single price (without a fee).

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

A monopolist knows that there are two types of consumers, “high demand” (H) and low demand...
A monopolist knows that there are two types of consumers, “high demand” (H) and low demand (L) types. Inverse demand for each consumer of the two types is p = 50 − qL and p = 100 − qH . 60% of consumers are of the L type. Marginal cost is zero. a) Find the optimal price if the firm can only set a single price. (One way to do this is to pretend that there are 6 consumers of...
a monopolist knows that there are 2 types of consumers, "high demand" and "low demand" types....
a monopolist knows that there are 2 types of consumers, "high demand" and "low demand" types. Inverse demand for low is p=150-qL and p=200-qH . 70% of consumers are the L type. MC =0. a) find the optinal price if the firm can only set one price. b) explain how a firm can set a fee for purchasing any amount and why it is better than single price strategy.
. A monopolist faces two types of consumers: low demand consumers and high demand consumers. A...
. A monopolist faces two types of consumers: low demand consumers and high demand consumers. A high demand consumer has valuation equal to VH(q) = 10 + q - q 2 for q units of output and a low demand consumer has valuation equal to VL(q) = 10 + q - 2q2 for q units of output. There are equal numbers of each type of consumer. Marginal cost of production is constant and equal to c. The monopolist wishes to...
A cinema knows near a university knows that there are two types of consumers: regular people...
A cinema knows near a university knows that there are two types of consumers: regular people and students. Ordinary people have an aggregate demand curveof? = 10−p/3 while students have an aggregate demand curve of? = 10–2p/3. The marginal cost of the cinema is zero. a) Suppose students can be separated from other people by their student id, and the cinema charges each group of consumers a different price. What prices would the cinema charge? b) Suppose the cinema cannot...
Let’s say that there are two types of grapefruits: Low-quality, and high-quality, and consumers buy a...
Let’s say that there are two types of grapefruits: Low-quality, and high-quality, and consumers buy a mix of the two, with high-quality grapefruits being more expensive. T/F/U: If the government puts a single, binding price floor on all grapefruits, the average quality of grapefruit consumed will rise.
A monopolist faces some consumers (called group-H consumers) with an inverse demand function for each consumer...
A monopolist faces some consumers (called group-H consumers) with an inverse demand function for each consumer given by p = 80 − q. The firm’s total cost function is given by: C(q) = 20q (so that MC = 20 for all q). First suppose that the firm only uses linear pricing (i.e., charges only a unit price p). 1. Find the price maximizing the firm’s profits. 2. What are the corresponding profit and surplus per consumer? Now suppose that the...
Question (Second-Degree Price Discrimination) A monopolist faces two types of consumers. The inverse demand function of...
Question (Second-Degree Price Discrimination) A monopolist faces two types of consumers. The inverse demand function of each type-1 consumer is P! = 100 − 2Q, while the inverse demand function of each type-2 consumer is:!P = 80 − Q. The firm’s cost function is given by: !C(Q) = 200 + 10Q. Suppose first that the firm is able to tell whether a consumer is of type-1 or type-2 (e.g. by checking some form of ID). Suppose also that the firm...
A monopolist practicing third degree price discrimination has two types of consumers.
  A monopolist practicing third degree price discrimination has two types of consumers. Type 1 have an elasticity of demand of 2, and Type 2 have an elasticity of demand equal to 5. Which of the following is true?  
A monopolist faces a market split evenly between high valuation consumers with individual inverse demand PH...
A monopolist faces a market split evenly between high valuation consumers with individual inverse demand PH = 20 − yH and low valuation consumers with individual inverse demand PL = 16 − 2yL For convenience, suppose the firm has a marginal cost equal to zero. Moreover, arbitrage is not possible. (a) (15 points) Assume the firm cannot observe group status (i.e., cannot identify if a customer has a high or low valuation). Determine the firm's best second-degree pricing scheme. Show...
Suppose there are two types of people in an insurance market, high and low risks. High...
Suppose there are two types of people in an insurance market, high and low risks. High risk people are sick 10% of the time and low risk people are sick 5% of the time. The probability any individual is high risk is 40%. Upon getting sick, an individual loses $10,000 in medical expenses. a) What are the actuarially fair premiums for the types? b) If the insurer cannot distinguish between the two types, but the two individuals know their types,...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT