Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a cell phone monopolist that serves two types of customers: A and B. Each A customer has a demand curve for minutes of service

Consider a cell phone monopolist that serves two types of customers: A and B. Each A customer has a demand curve for minutes of service given by P=4-0.1Q, while each B customer has a demand curve for minutes of service given by P=8-0.1Q. The marginal cost of providing minutes of service to either type of customer is MC=0.50. Suppose the monopolist sells to both types of customers using a menu of two-part tariff plans. Plan A, which is designed to attract A customers only, has a per minute price of $0.60 and a fixed fee that leaves a A customer with zero consumer surplus. Plan B, which is designed to attract B customers only, has a per minute price of $0.50 (equal to the monopolist's marginal cost) and a fixed fee of F. 8. What is the fixed fee that the monopolist will charge under Plan A? $ ______________ 9. What is the largest fixed fee that the monopolist can charge under Plan B that will leave B customers indifferent between Plan A and Plan B? $ _______________ Now suppose the monopolist limits the number of minutes that customers can buy in Plan A to the number a A customer wants to purchase at the per minute price of $0.60. 10. Now what is the largest fixed fee that the monopolist can charge under Plan B that will leave B customers indifferent between Plan A and Plan B? $ ___________________ Suppose that instead of limiting the number of minutes that customers can buy in Plan A the monopolist charges a surcharge price for minutes over the number that a A customer will want to purchase at the per minute price of $0.60, so that by design, only B customers will be saddled with the volume surcharge. 11. What surcharge price will be optimal for the monopolist to charge? $ __________________ Now suppose the monopolist decides to offer 'free' minutes under Plan A, equal to the number of minutes that a A customer will want to purchase at the per minute price of $0.60. 12. What is the largest fixed fee that the monopolist can

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

Economics The Basics

Authors: Michael Mandel

2nd Edition

0073523186, 9780073523187

More Books

Students also viewed these Economics questions