Question: A monopoly produces a good with a network externality at a constant marginal and average cost of c = $ 3 . In the first
A monopoly produces a good with a network externality at a constant marginal and average cost of
c$
In the first period, its inverse demand curve is p Q text In the second period, its inverse demand curve is p Q unless it sells at least
Q
units in the first period. If it meets or exceeds this target, then the demand curve rotates out. by
alpha
it sells
alpha
times as many units for any given price so that its inverse demand curve is pfracalpha Q text The monopoly knows that it can sell no output after the second period. The monopoly's objective is to maximize the sum of its profits over the two periods. For what values of
alpha
would the monopoly earn a higher twoperiod profit by setting a lower price in the first period? If
alpha
is round your answer to two decimal places
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