Revisit the Netflix membership fee issue discussed in Problem 20. Suppose you learn that there are actually two types of Netflix user: intensive users and casual users. Intensive users compose 20% of all viewers and have inverse demand:

P

I

=

0.6

0.01

Q

I

where Q is measured in hours of streaming time. Casual users compose 80% of all viewers and have inverse demand:

P_C=0.40.02Q_C

You are tasked with choosing the optimal monthly membership fee. Netflix remains committed to allowing unlimited streaming, once this fee has been paid. (You may assume Netflix can provide an hour of streaming at essentially zero marginal cost.)

a.How many hours will intensive users stream, and how much consumer surplus will they receive?

Q_I=

CS_I= $

b.How many hours will casual users stream, and how much consumer surplus will they receive?

Q_C=

CS_C = $

c.What fee will you charge?

P= $

d.Your answer would change if intensive users composed 25% of all viewers.

True Or False