Q4-11: Suppose we have a monopolist supplying two different markets. The demand in these marketsis given by two types of consumers, each buying exactly one unit of the product a monopolist is selling so long as theirconsumer surplus is non-negative. If the consumer has a choice, she or he will buy the product that gives them the highestconsumer surplus. the monopolist has estimated the indirect utility (CS) of each type of consumer asV₁ = 7z₁ - P₁V₂ = 222 - P2==where = {1,2} is the quality chosen by the monopolist i.e. vertical differentiation. The monopolist does not knoweach consumer's type. There are 397 type one consumers and 107 type two consumers. Finally suppose the marginal costfor all quantities is given by e(z) =2.Q4-1: What are the lowest qualities type 1 and 2 consumers will demand.Q4- 3: What are the incentive compatibility constraints for type 1 and 2Q4-4: The monopolist has three options:■Sell only to high type consumers■ Sell to both consumers the same quality product■ Sell to both type of consumers but different quality products.Solve for all these options and determine which one is best.

Q 4-1: What are the lowest qualities type 1 and 2 consumers will demand.For consumers to buy the…

Answered: Q4-11: Suppose we have a monopolist…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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