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Question 4 Consider a monopolist facing two consumers with the following two inverse demand functions: P=200-4Q₁ and P=122- 6Q2. Assume that fixed costs are zero and that the marginal cost is equal to $8. a) Suppose the monopolist can differentiate between the two consumers. The monopolist decides to use a two- part tariff that permits both consumers to stay in the market. Solve for each consumer's demand, fixed fee and monopolist profits. b) Assume the monopolist cannot differentiate between the two consumers and hence cannot apply a two-part tariff. He decides to serve both consumers. Solve for the equilibrium aggregate demand and price in the market, demand of each consumer and the monopolist profit. c) Now assume the monopolist decides not to serve the low demand consumer. Solve for price, demand and monopolist profits. Is the monopolist better off as a result of eliminating the low-volume consumer from the market?

Question 4 Consider a monopolist facing two consumers with the following two inverse demand functions: P=200-4Q₁ and P=122- 6Q2. Assume that fixed costs are zero and that the marginal cost is equal to $8. a) Suppose the monopolist can differentiate between the two consumers. The monopolist decides to use a two- part tariff that permits both consumers to stay in the market. Solve for each consumer's demand, fixed fee and monopolist profits. b) Assume the monopolist cannot differentiate between the two consumers and hence cannot apply a two-part tariff. He decides to serve both consumers. Solve for the equilibrium aggregate demand and price in the market, demand of each consumer and the monopolist profit. c) Now assume the monopolist decides not to serve the low demand consumer. Solve for price, demand and monopolist profits. Is the monopolist better off as a result of eliminating the low-volume consumer from the market?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question 4 Consider a monopolist facing two consumers with the following two inverse demand functions: P=200-4Q₁ and P=122- 6Q2. Assume that fixed costs are zero and that the marginal cost is equal to $8. a) Suppose the monopolist can differentiate between the two consumers. The monopolist decides to use a two- part tariff that permits both consumers to stay in the market. Solve for each consumer's demand, fixed fee and monopolist profits. b) Assume the monopolist cannot differentiate between the two consumers and hence cannot apply a two-part tariff. decides to serve both consumers. Solve for the equilibrium aggregate demand and price in market, demand of each consumer and the monopolist profit. c) Now assume the monopolist decides not to serve the low demand consumer. Solve for price, demand and monopolist profits. Is the monopolist better off as a result of eliminating the low-volume consumer from the market?
Transcribed Image Text:Question 4 Consider a monopolist facing two consumers with the following two inverse demand functions: P=200-4Q₁ and P=122- 6Q2. Assume that fixed costs are zero and that the marginal cost is equal to $8. a) Suppose the monopolist can differentiate between the two consumers. The monopolist decides to use a two- part tariff that permits both consumers to stay in the market. Solve for each consumer's demand, fixed fee and monopolist profits. b) Assume the monopolist cannot differentiate between the two consumers and hence cannot apply a two-part tariff. decides to serve both consumers. Solve for the equilibrium aggregate demand and price in market, demand of each consumer and the monopolist profit. c) Now assume the monopolist decides not to serve the low demand consumer. Solve for price, demand and monopolist profits. Is the monopolist better off as a result of eliminating the low-volume consumer from the market?
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Step 1: Define two part pricing

Two-part pricing is a pricing strategy often used by businesses to maximize their profits, particularly in industries where they can differentiate between customers based on their willingness to pay.

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