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Suppose YouSee is the only internet provider in the village of Frederiksskov. The demand for internet services from its inhabitants is characterized by the demand
Suppose YouSee is the only internet provider in the village of Frederiksskov. The demand for internet services from its inhabitants is characterized by the demand function D(p) = 45 - 2 for data traffic, in terabytes per month, as a function of monthly price p. The marginal cost for YouSee of servicing x amount of traffic is given by MC(x) = 30 + 2x. (a) Derive the amount of data traffic YouSee will supply to the residents of Frederiksskov, x*, and the resulting traffic price p*. (b) Derive the socially optimal amount of data traffic x (that YouSee would have provided in a competitive market). (c) Derive the subsidy size s that the government should pay to YouSee (per terabyte served) to incentivize it to provide the socially optimal amount of data traffic. (d) Derive the equilibrium traffic price that the residents of Frederiksskov will pay once the subsidy you derived in (c) is in place. How does the reduction in consumer price compare to the size of the subsidy paid to YouSee
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