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a group of 9 players with players differ in the utility they get from playing alone, but all get equal additional utility from entry of each additional player. Players are ranked by their willingness to pay to play alone. Player 1 has the highest utility of playing alone. Willingness to pay of player is given by:

W(i,n) = 9-i + (n-1)/3

a. is this an example of direct or indirect network effects?

b. if the marginal cost of play is 4, how many players will play under perfect competition? (Assume a player plays if indifferent between playing or not playing.) Find aggregate surplus.

c. Does the competitive solution maximize net surplus of the group? If not, is there a policy that can achieve maximum surplus?

d. If play is controlled by a monopoly that cannot price discriminate, how much will it charge? How many will play, and what is the consumer surplus and monopoly profit?

e. why is the competitive solution not the welfare-maximizing solution?