Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please answer parts e) to i) A manufacturer of flash drives has a profit function 7: = t 6a2 where t is the price charged

please answer parts e) to i)

image text in transcribedimage text in transcribed
A manufacturer of flash drives has a profit function 7: = t 6a2 where t is the price charged for a flash drive and q2 is the cost of producing a drive whose capacity is q gigabytes. A consumer of type 0 has a utility function u = 9g t, where 0 takes on a value of 13 for Htype 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 ({jL, {1) is the optimal (profit maximising) capacity-price bundle for L-type consumer under complete information. What is the value of tL ? b) (0.25 point) Suppose (6H, fH) is the optimal (profit maximising) capacityprice bundle for H-type consumer under complete information. What is the value of tH ? 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 (L, tL) and (H, tH). What is the utility for the type 0L consumer from buying the (H, tH) bundle? That is, what is uL(H, tH)? e) (1 points) What is the utility for the type 0H consumer from buying the (6L, fL) bundle? That is, what is uH(q\"L, 3L)? f) (1 point) What are the seller's profits if he offers the bundles (q'L, 3L) and (61131;) when information is asymmetric? Now suppose the seller decides to offer a menu of capacity-price bundles (qL, 1'1) and (qH, tH) to incentives the two types of consumers to sort themselves out. Answer part 9) 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 ((1131:) is the optimal (profit maximising) capacityprice bundle for Ltype consumer under asymmetric information. What is the value of t}? 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, t1) 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

Macroeconomics Principles Applications And Tools

Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez

7th Edition

978-0134089034, 9780134062754, 134089030, 134062752, 978-0132555234

More Books

Students also viewed these Economics questions