Question: Consider a monopoly with marginal cost equal to 4. There are two types of customers: high type (H) with demand p = 20 - Q

Consider a monopoly with marginal cost equal to 4. There are two types of customers: high type (H) with demand p = 20 - Q and low type (L) with demand p = 16 - Q. a. Assume the monopoly can observe and distinguish the types of the consumers. The monopolist would like to offer the consumers two different packages (FH, PH, QH), (FL, PL, QL), where F is a fixed fee. Each customer is trapped and can only buy the package offered to them. Determine the values of F, P and Q in each package. (b) Now suppose: i) even though the monopolist know there are two types of consumers but can't verify the type of customer; ii) that any customer is free to choose 2 the package s/he wants; iii) the number of low type & high types customers are such that it is better to offer two packages(one for low type & the other high type) rather one package. What packages (FH, PH, QH), (FL, PL, QL) should the monopolist offer now

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!