Wonder Inc. has invented a new machine. The company wants to lease its machines, but it is yet to finalize the terms for leasing. The marginal cost of running a machine is $30 per hour. The estimated demand function for the services of a machine is given by:

p = 45 - 0.025 q

where p is the price for using the machine for one hour, and

q is the number of hours of usage of the machine per month. Using the above information, answer the following two questions:

1. If Wonder Inc. sets a uniform price, what should be the hourly rate and what would be demand at that price?
2. Wonder Inc. is also considering the option of charging a low hourly rate along with a fixed monthly fee. If Wonder Inc. chooses to levy a two-part tariff, then what would be the hourly rate based on usage level and the fixed monthly fee. (Refer to PowerPoint slide on nonlinear pricing)

Answer rating: 100% (QA)

To find the hourly rate and demand at that price when Wonder Inc sets a uniform price we need to max... View the full answer