1. 5.5 As described in the Application “Pricing iTunes,” Shiller and Waldfogel (2011) estimated that if iTunes used two part pricing charging an annual access fee and a low price per song, it would raise its profit by about 30%

relative to what it would earn using uniform pricing or variable pricing. Assume that iTunes uses two-part pric ing and assume that the marginal cost of an additional download is zero. How should iTunes set its profit maximizing price per song if all consumers are identi cal? Illustrate profit-maximizing two-part pricing in a diagram for the identical consumer case. Explain why the actual profit-maximizing price per song is positive.