Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

5. You are the manager of a monopoly. A typical consumer's inverse demand function for your firm's product is P= 250 - 40Q, and your

5. You are the manager of a monopoly. A typical consumer's inverse demand function for your firm's product is P= 250 - 40Q, and your cost function is C(Q) = 10Q. a. Determine the optimal two-part pricing strategy.

Given answer by my professor:

The efficient consumption is the level when demand=marginal cost. The marginal cost is $10 per unit. Let 250-40Q=10, we have Q=6. In order to induce consumers to buy 6 units, the unit price must be p=250-40*6=$10. The fixed fee then should be (250 - 10)(6)(0.5) = $720.

Why is this formula for fixed fee? I don't understand how I can make this calculation for fixed fee.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics Policy And Practice

Authors: Frederic Mishkin

2nd Edition

0133424316, 978-0133424317

More Books

Students also viewed these Economics questions

Question

13-31. What are the alternatives?

Answered: 1 week ago