Question 3. [7 points] A streaming service provider is designing a monthly subscription package, that is...

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Question 3. [7 points] A streaming service provider is designing a monthly subscription package, that is specifically designed for students and non-student adult customers. The firm estimates that the student demand is described by P = 18 - Q, and non-student demand is given by P = 20 - Q where P is price and Q is the number of months. The marginal cost of the firm is constant at $2. Assume that the firm is not able to differentiate its customers, hence does not know how much they are willing to pay. Currently, student package costs $160, and it includes 16 months of streaming subscription. Now, this firm is thinking about how to use the concepts from the second-degree price discrimination and price the package for non-student customers with 18-month subscription. a) Show the student package costs $160, and it includes 16 months of streaming subscription. b) Calculate how much adults are willing to pay for 16 months of subscription (Hint: Calculate adult customer total willingness to pay for 16 units). c) How much surplus will adult (non-student) customer get if they purchase a package designed to students? d) The streaming service provider wants non-student customers to purchase a package with 18 months of subscription. What should be the price of such subscription? Question 3. [7 points] A streaming service provider is designing a monthly subscription package, that is specifically designed for students and non-student adult customers. The firm estimates that the student demand is described by P = 18 - Q, and non-student demand is given by P = 20 - Q where P is price and Q is the number of months. The marginal cost of the firm is constant at $2. Assume that the firm is not able to differentiate its customers, hence does not know how much they are willing to pay. Currently, student package costs $160, and it includes 16 months of streaming subscription. Now, this firm is thinking about how to use the concepts from the second-degree price discrimination and price the package for non-student customers with 18-month subscription. a) Show the student package costs $160, and it includes 16 months of streaming subscription. b) Calculate how much adults are willing to pay for 16 months of subscription (Hint: Calculate adult customer total willingness to pay for 16 units). c) How much surplus will adult (non-student) customer get if they purchase a package designed to students? d) The streaming service provider wants non-student customers to purchase a package with 18 months of subscription. What should be the price of such subscription?

Answer rating: 100% (QA)

a The student package costs 160 for 16 months of streaming subscription This means the price per mon... View the full answer