HW2 Econ4340

Suppose that there are two goods with demand functions Q: = 1 - b;Pu,i = 1,2, b1 = 1 and b2 = 0.5. There are no variable production costs but there is a common fixed cost equal to 0.72. (a) Give the equation for the consumer surplus in each market (b) Suppose that the firm can profit maximize but has to use linear pricing. What price will it choose if it cannot price discriminate? What if it can exercise third degree price discrimination? (group pricing) (c) How does your answer to (b) change if the firm can use two-part tariffs? The same two-part tariff and two two-part tariffs with third degree price discrimination