Question
Zinnia started an exclusive business selling artisanal pickle recipes using a mobile phone app. Roughly half of her target customers are Android users and half
Zinnia started an exclusive business selling artisanal pickle recipes using a mobile phone app. Roughly half of her target customers are Android users and half are iPhone users. The inverse demand of the typical iPhone user is p = 6 - (q/2) and the inverse demand of the typical Android user is p = 4 - (q/2). For simplicity, assume there is only one of each type of consumer. The marginal cost of selling an additional recipe is zero (and she has no fixed costs). Zinnia begins by developing her iPhone app and sells only to iPhone users first. What price and quantity will Zinnia choose to maximize her profits from iPhone users? Calculate the deadweight loss from her previous profit-maximizing decision. Zinnia finally finishes her Android app. If she sets a single uniform price across both platforms (iPhone and Android), what price and quantity will Zinnia choose to maximize her profits as a monopolist [hint: it may be helpful to first find the market demand function]? Setting the previous uniform price across both platforms, what are her total profits?
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