(Screening Problem) A monopolist decides both the price p and the quality q of the producthe sells. Each buyer buys exactly one unit, but buyers vary in terms of their preferences forquality. There are two types of buyers: high-type with utility functions UH (q, t) = 2/q-pand low-type with utility function U (q, t) = vq – p. Let the probability of drawing ahigh-type buyer is 0.2. The cost of production for quality level q is just q (i.e., c(q) =q). The monopolist attempts to maximize his revenue by offering a menu of contracts{(qL, PL), (qH, PH)}. Find the optimal screening contract for the monopolist.%3D

Screening is a method by means of which a single entity acquires and examines details in an attempt…

(Screening Problem) A monopolist decides both the price p and the quality q of the product he sells. Each buyer buys exactly one unit, but buyers vary in terms of their preferences for quality. There are two types of buyers: high-type with utility functions UH (q, t) = 2√q-p and low-type with utility function UL (q,t) = √9 - p. Let the probability of drawing a high-type buyer is 0.2. The cost of production for quality level q is just q (i.e., c(q) = q). The monopolist attempts to maximize his revenue by offering a menu of contracts {(9L.PL), (9H,PH)}. Find the optimal screening contract for the monopolist.

(Screening Problem) A monopolist decides both the price p and the quality q of the product he sells. Each buyer buys exactly one unit, but buyers vary in terms of their preferences for quality. There are two types of buyers: high-type with utility functions UH (q, t) = 2√q-p and low-type with utility function UL (q,t) = √9 - p. Let the probability of drawing a high-type buyer is 0.2. The cost of production for quality level q is just q (i.e., c(q) = q). The monopolist attempts to maximize his revenue by offering a menu of contracts {(9L.PL), (9H,PH)}. Find the optimal screening contract for the 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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