Question
Assume you were just hired by a company with a virtual monopoly renting ultra-high-speed computers for satellite installation businesses worldwide. All installation businesses have identical
Assume you were just hired by a company with a virtual monopoly renting ultra-high-speed computers for satellite installation businesses worldwide. All installation businesses have identical demands for ultra-high-speed computers, and your company decided to lease rather than sell the computer to them. You were asked to decide whether the company should charge a single hourly rental charge or a two-part tariff. Under the two-part tariff, users would be levied an "access charge" plus an hourly rental rate. Working with the marketing staff, you estimated the following inverse demand curve for each of the potential users: P = 45 - 0.025Q where P = price per hour of computer time, and Q = the number of hours of computer time leased per month. Your company offers its users extensive maintenance assistance and technical support. The firm's engineers estimate that marginal cost is $30 per computer hour. a.(5 points)If your company chooses to set a single price, what are the firm's profit maximizing price and output? b.(10 oints) If your company chooses a two-part tariff, what "access charge" and hourly rental fee should the firm set? c.(10 points) Compare the firm's revenues under the options in (a) and (b).
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