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A manufacturer of flash drives has a profit function it = 1 - 6q where t is the price charged for a flash drive and
A manufacturer of flash drives has a profit function it = 1 - 6q" 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 - 1, where 0 takes on a value of 13 for H-type consumers, or 11 for L-type consumers. There are 10 consumers of each type. A consumer gets zero utility if she does not buy. Answer the following. If rounding is needed, round to 3 decimal points. a) (0.25 point) Suppose (q L, IL) is the optimal (profit maximising) capacity-price bundle for L-type consumer under complete information. What is the value of t L ? b) (0.25 point) Suppose (q H, 1 H) is the optimal (profit maximising) capacity-price bundle for A-type consumer under complete information. What is the value of t H? c) (0.5 points) What is the seller's overall profit under complete information? For part d) - i), assume information is asymmetric. d) (0.5 point) Suppose that the seller continues to offer the capacity-price bundles that maximises his profit under complete information: that is, he offers (qL , 1 1) and (qH, TH). What is the utility for the type Of consumer from buying the (q H, i H) bundle? That is, what is UL(qH, TH)? e) (1 points) What is the utility for the type 0 # consumer from buying the (qL, IL) bundle? That is, what is UH (qL, IL)? f) (1 point) What are the seller's profits if he offers the bundles (q1, 1 1) and (q H , TH) when information is asymmetric? Now suppose the seller decides to offer a menu of capacity-price bundles (qL, (1) and (qH , TH ) to incentives the two types of consumers to sort themselves out. Answer part g) to i) in this context. g) (1 point) For H-type consumer, what is the optimal (profit maximising) level of qH ? h) (1 point) Suppose (q1 , 17 ) is the optimal (profit maximising) capacity-price bundle for L-type consumer under asymmetric information. What is the value of f/ ? i) (0.5 points) 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
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