A company is introducing a new durable-handle, disposable-blade razor into the marke (with 6 blades!). There are two types of users, daily shavers and baby-faced weekly shavers. The demand for disposable blades for a daily shaver is q H = 93 : 25 55 pwhile for a weekly shaver, the demand isqL= 30 :75 25p:

The marginal cost of the disposable blade is $0: 25 : Suppose that the durable handles can be produced at zero marginal cost. The rm is unable to distinguish a daily shaver from a weekly shaver.

It is not possible to use the blades without the handle, and the handle can not be used with any other blades. The firm sets the price of the handle at A and the price of disposable blades at p:

1. A company is introducing a new durablehandle, disposableblade razor into the market (with 6 bladesl). There are two types of users, daily shavers and babyfaced weekly shavers. The demand for disposable blades for a daily shaver is qH : 93.25 551:) while for a weekly shaver, the demand is qL : 30.75 25p. The marginal cost of the disposable blade is $0.25. Suppose that the durable handles can be produced at zero marginal cost. The rm is unable to distinguish a daily shaver from a weekly shaver. It is not possible to use the blades without the handle, and the handle can not be used with any other blades. The rm sets the price of the handle at A and the price of disposable blades at p. (a) If the rm were to set the price of the disposable blade at p : 0.25, determine the maximum price, A they could sell the handle for and still have both users purchase. Determine the surplus (prots) to the rm from doing this. (b) When p : 0.25 as in part (a) above, explain whether the marginal revenue from selling an additional disposable blade (increasing q) is larger or smaller than the marginal cost of producing the additional disposable blade. (c) Find the total demand for disposable blades, Q : qH + ql' (note: this will be a kinked demand function, it should consist of two segments). Determine the inverse demand, P(Q) over the range where both qH and qL are positive and write this using qH + qL in place of Q. (1 Ex lain wh the rot maximizin condition for the rm is to set H and so P Y 13 g (I that clip PMH +qu + EEK qL) = C Determine the optimal level of qH. (e) Use the daily shaver demand curve to nd the price the rm will charge for the disposable blade, 39. Find (1L (using p and the weekly shaver demand function). Determine the price of the handle, A. (f) Determine the surplus to the rm when they set A and 19 according to (e) and compare your result to the surplus in (a)