Let there be two types of consumer. Type A has utility given by 12q − p. Type B has utility given by 5q − p, where q is a numerical index of quality and p is the price of a unit. There are three times as many Type B’s as there are Type A’s. The total number of consumers is 400. The marginal cost of serving each individual consumer’s purchase is 4q. This means the total variable cost of serving a consumer is equal to 2q 2 . The firm must also incur a fixed cost of production equal to F. Given that the firm cannot distinguish a Type A from a Type B, would the firm want to operate if F = 1000?

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To determine whether the firm would want to operate lets analyze the situation The utility functions ... View the full answer