A firm provides a service to its clients. LetPbe the price charged for the service. The demand curvefor each clientisP=20-0.1Qand the cost curve isC(Q)=10+2Q.

a)If the firm charges a single price for the service, what is the optimal price and quantity Q for the service? Compute the profit per customer.

b)Explain two-part tariffs and its applications. If the firm charges a two-part tariff, what is the optimal up-front fee, the pricePand quantityQper customer? What is the profit per customer in this case? Explain.