Question
. Suppose you own an internet company that serves two markets: Edinburgh and Glasgow. Demand for internet in each of the markets is given by:
. Suppose you own an internet company that serves two markets: Edinburgh and Glasgow. Demand for internet in each of the markets is given by: ED = 60 0.25ED and GL = 100 0.5GL. Quantity is in thousands of subscribers per year, and the price is the annual subscription price. The cost of providing services to thousands of subscribers per year is: = 1000 + 40. a) Would you like to set different prices to the different markets? Provide an intuitive explanation without making any calculations. [2 marks] b) If you must charge the same price in both markets, what price will you set, how much will be sold in each market? [3 marks] c) Suppose instead that a different price can be set in each market. What are the prices and quantities? [3 marks] d) In which situation (b or c) are people in Edinburgh better off? In which situation are people in Glasgow better off? How does total consumer surplus differ in the two cases?
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