Revisit the Netflix membership fee issue discussed in Problem 20. Suppose you learn that there are actually two types of Netflix user: 

intensive users and casual users. Intensive users comprise 20% of all viewers and have inverse demand: 

where Q is measured in hours of streaming time. Casual users comprise 80% of all viewers and have inverse demand:

You are tasked with choosing the optimal monthly membership fee. Netflix remains committed to allowing unlimited streaming once this fee has been paid. (You may assume Netflix can provide an hour of streaming at essentially zero marginal cost.)

a. What fee will you charge?

b. Would your answer change if intensive users comprised 25% of all viewers?

Transcribed Image Text:

Pe = 0.4-0.020c