Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A manufacturer of flash drives has a profit function , = t - 4q where t is the price charged for a flash drive and

image text in transcribed
image text in transcribed
A manufacturer of flash drives has a profit function , = t - 4q where t is the price charged for a flash drive and q" is the cost of producing a drive whose capacity is q gigabytes. A consumer of type 0 has a utility function u = 0q - t, where 0 takes on a value of 15 for H-type consumers, or 8 for L-type consumers. There are 10 consumers of each type. A consumer gets zero utility if she does not buy. If a consumer is indifferent between buying two flash drives, assume she will buy the one with more capacity. If a consumer is indifferent between buying a flash drive and not buying, assume she will buy. Answer the following. If rounding is needed, round to 3 decimal points. 3) Suppose (q L, t L) is the optimal (profit maximising) capacity-price bundle for L-type consumer under complete information. What is the value of t I? b) Suppose (q H, t H) is the optimal (profit maximising) capacity-price bundle for H-type consumer under complete information. What is the value of t H? :) What is the seller's overall profit under complete information? For part d) - i), assume information is asymmetric. d) Suppose that the seller continues to offer the capacity-price bundles that maximises his profit under complete information: that is, he offers (q L, t L) and (q H, t H). What is the utility for the type Of, consumer from buying the (q H, t H) bundle? That is, what is ul(q H, t H)? e) What is the utility for the type OH consumer from buying the (q L, t L) bundle? That is, what is wH (9 L, EL)? f) What are the seller's profits if he offers the bundles (q L, tL) and (q H, t H) when information is asymmetric? Now suppose the seller decides to offer a menu of capacity-price bundles (qL, tL) and (qH, tH) to incentives the two types of consumers to sort themselves out. Answer part 9) to i) in this context. g) For H-type consumer, what is the optimal (profit maximising) level of qH? h) Suppose (qi, t[) is the optimal (profit maximising) capacity-price bundle for L-type consumer under asymmetric information. What is the value of ty? i) What is the seller's overall profit under asymmetric information if the seller offers a menu of profit maximizing capacity-price bundles (qL, tL) and (qH, tH) to consumers

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

International Macroeconomics

Authors: Robert C. Feenstra, Alan M. Taylor

Fourth Edition

1319061729, 978-1319061722

More Books

Students also viewed these Economics questions