Question: In the vertical differentiation model, the consumers have utility U = 0s - p if they purchase and 0 otherwise. is distributed uniformly over

In the vertical differentiation model, the consumers have utility U = 0s

In the vertical differentiation model, the consumers have utility U = 0s - p if they purchase and 0 otherwise. is distributed uniformly over interval [0, 1]. s is the quality and p is the price. The size of total population is normalized to 1. (a) Derive the demand function and the social surplus function. (b) If cost function is c(q, s) = g(cs2), where c is a constant. Find out the optimal q and s for both the firm's profit maximisation problem and the social welfare maximisation.

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aThe demand function is Q 1 p p The social surplus function is U 1 2 p bThe optimal quantity is q 0 ... View full answer

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