Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Q7. Two-part tariffs [30 points) A monopolist face; two consumers with the following demand curves: P1 = 10 91 P2 = 8 92 The monopolist

image text in transcribed
Q7. Two-part tariffs [30 points) A monopolist face; two consumers with the following demand curves: P1 = 10 91 P2 = 8 92 The monopolist has no cost of production. It can charge an entry fee f and a per-unit price 1). First, we suppose p 2 MC = U and the monopolist only charges an entry fee. a. Given the monopolist serves both customers, what is the profit maximizing f? b. Can the monopolist make more money by charging a higher entry fee? Now suppose the monopolist wants both consumers to enter but is willing to change the price p (and therefore CS changes). Given both consumers enter and consume nonnegative quantities, the monopolist's profit is 'r'r =p(18 - 219), subject to the constraint (which I will call (IRD that all consumers have nonnegative surplus after entry fees: (8 -p)2 (rmTfzo c. Calculate the profit-maximizing p and f. d. Explain in words which scheme (parts a, b, or c) is efficient from a simple social welfare perspective

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

The Economic Development Of Latin America Since Independence

Authors: Luis Bértola, Luis Bértola

1st Edition

0191638242, 9780191638244

More Books

Students also viewed these Economics questions

Question

25.0 m C B A 52.0 m 65.0 m

Answered: 1 week ago