Consider a monopolist that sells two goods at prices p1 and p2 with a demand given by q1 = a – bịpi + cp2 and q2 = a – bzp2 + cp1 where a > 0, b1, b2 > 0 and c? < b1 · b2. Marginal cost is zero for both goods. - (a) Find optimal prices and quantities for good 1 and good 2 assuming c = 0. (b) Redo (a) for c + 0. (c) Are the prices you found in (b) higher or lower than the prices in (a)? What does your answer depend on? (d) Which good has a higher price in (b)? Explain. (e) Can any of the optimal prices be negative? If yes, under which condi- tions and explain reasons. Show that both prices cannot be negative at the same time.

Consider a monopolist that sells two goods at prices p1 and p2 with a demand given by q1 = a – bịpi + cp2 and q2 = a – bzp2 + cp1 where a > 0, b1, b2 > 0 and c? < b1 · b2. Marginal cost is zero for both goods. - (a) Find optimal prices and quantities for good 1 and good 2 assuming c = 0. (b) Redo (a) for c + 0. (c) Are the prices you found in (b) higher or lower than the prices in (a)? What does your answer depend on? (d) Which good has a higher price in (b)? Explain. (e) Can any of the optimal prices be negative? If yes, under which condi- tions and explain reasons. Show that both prices cannot be negative at the same time.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.2P

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