1. (Two-part tariff) In a monopoly market, there are two consumers, their demand functions are: Q = 5 - p and Q = 10 - 2p. the monopolist 's cost function is C = 0.5q, and he decide to implement the two-part tariff strategy, i.e. each consumer pays a fixed/entry fee (a) and a price (p) for each unit consumed: T(q) = a + pq. Draw the demand curves for both consumers. а. b. At a given price "p", what is the fixed fee "a"? (hint: a is designed to be the consumer surplus of the least eager consumer) c. What is the optimal fixed fee "a" and price "p"?
1. (Two-part tariff) In a monopoly market, there are two consumers, their demand functions are: Q = 5 - p and Q = 10 - 2p. the monopolist 's cost function is C = 0.5q, and he decide to implement the two-part tariff strategy, i.e. each consumer pays a fixed/entry fee (a) and a price (p) for each unit consumed: T(q) = a + pq. Draw the demand curves for both consumers. а. b. At a given price "p", what is the fixed fee "a"? (hint: a is designed to be the consumer surplus of the least eager consumer) c. What is the optimal fixed fee "a" and price "p"?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. (Two-part tariff) In a monopoly market, there are two consumers, their demand
functions are: Q = 5 - p andQ = 10 - 2p. the monopolist 's cost function is C = 0.5q, and
he decide to implement the two-part tariff strategy, i.e. each consumer pays a
fixed/entry fee (a) and a price (p) for each unit consumed: T(q) = a + pq.
Draw the demand curves for both consumers.
а.
b. At a given price "p", what is the fixed fee “a"? (hint: a is designed to be the
consumer surplus of the least eager consumer)
c. What is the optimal fixed fee "a" and price "p"?
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