So I'm feeling brain dead this week and have been struggling with this HW question for my intermediate micro class.
Consider a monopolist facing two demand curves for its product (from two different types of consumers):
P1 = 10 - Q1 P2 = 14 - Q2 where Q1 and Q2 are the quantities purchased. For simplicity sake, assume MC=AC=4.
a. The monopolist decides to price using a single two part tariff. Assume that the monopolist sets price equal to MC.
i. If there are 100 total customers, ½ of which are type 1 customers and ½ of which are type 2 customers, what fee would maximize the firms profits? Would it sell the good to both types of customers?
ii. Assuming that there are 100 total customers, what is the minimum number of type 1
customers that must exist so that the firm would find it profitable to sell to both types of
b. Now suppose the firm is deciding to offer a menu of two part tariffs. It will offer the following pricing choices:
Plan 1: P = 6 and Fee = 8, with a maximum quantity that can be bought = 4
Plan 2: P = 4 and Fee =??
If there are 100 total customers, 70 of which are type 1 customers and 30 of which are type 2 customers, what fee would the firm set in Plan 2 to maximize its profits?
Help would be appreciated