A monopoly with constant marginal cost mc=$20 has two potential groups of customers, whose demands are...

A monopoly with constant marginal cost mc=$20 has two potential groups of customers, whose demands are Q1=100-.8p and Q2 =125-p, respectively. Fixed cost is 0.

a) If the firm knows the type of each individual consumer, and it can charge two two-part tariffs, what are these two two-part tariffs under first degree price discrimination?

b) If the monopoly can charge them the same two-part tariff, and unit price is equal to marginal cost, what is the fixed fee the monopolist will charge to maximize its profits (Hint: sell to one or both?

c) If the monopoly can charge them the same two-part tariff, compared to the two-part tariff calculated in part b), the optimum two-part tariff will have a higher or lower unit price? Higher or lower fixed fee?

Expert Solution

Rahul Sunny answered 2 years ago

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