Y6

Microsoft's inverse demand for the new operating system is given by P = 100 Q

The marginal cost is assumed to be zero and fixed costs are $1000. Assume that Microsoft can charge different prices on two segments of the market: individual buyers and firms. The demands on two segments are:

PI = 40 5/4QI

PF = 250 - 5QF

a. (5 pts.) What is the profit-maximizing pricing policy if Microsoft charges a different price to each customer segment?

b. (5 pts.) What if price discrimination is not allowed, what is the profit maximizing uniform price?

c. Bonus (10 points). Calculate the producer and consumer surplus in part a and b. Which pricing policy achieves highest total surplus?