A monopoly firm faces two consumers; one whose demand is Q1 = 8 - P. The...

 

Transcribed Image Text:

A monopoly firm faces two consumers; one whose demand is Q1 = 8 - P. The other's demand is Q2 = 16-2P. The firm has zero costs C(Q) = 0. You may want to graph demand. a. Derive (points for steps) the firm's profit-maximizing price if it cannot price discriminate. Label it P1. b. Given the price in a, derive the profit-maximizing fixed fee the firm could charge and explain why (participation constraint) it works. Label it F1. c. What is the net consumer surplus of each consumer with {P1, F1} d. Let your answers in a and b (i.e., (P1, F1}) be one two-part offer from the firm. Given this derive the optimal second two-part tariff (price and fixed fee, P2, F2) the firm would set and explain why the high-demand consumer takes this offer instead. 50 A monopoly firm faces two consumers; one whose demand is Q1 = 8 - P. The other's demand is Q2 = 16-2P. The firm has zero costs C(Q) = 0. You may want to graph demand. a. Derive (points for steps) the firm's profit-maximizing price if it cannot price discriminate. Label it P1. b. Given the price in a, derive the profit-maximizing fixed fee the firm could charge and explain why (participation constraint) it works. Label it F1. c. What is the net consumer surplus of each consumer with {P1, F1} d. Let your answers in a and b (i.e., (P1, F1}) be one two-part offer from the firm. Given this derive the optimal second two-part tariff (price and fixed fee, P2, F2) the firm would set and explain why the high-demand consumer takes this offer instead. 50

Answer rating: 100% (QA)

Answer a When the price discrimination is not there then I have combined the demand equations 20 2P ... View the full answer