There is only one firm that produces NICE sneakers, and its product has no substitutes. There are two types of customers in the market for NICE sneakers; type H and type L with the following demand functionsQH = 2000 - 20P andQL = 500 - 5P . Moreover, the firm’s cost function isTC = 100 1. Plot the inverse demand curves and the marginal cost for each type of customers. 2. Imagine that there is one customer of each type (2 customers in total) and the firm is not able to identify customer’s type. If the firm wants to charge a fixed fee for entering the shop and then charge for each pair of sneakers (a two part tariff pricing strategy), what is the fixed entrance fee, and what is the product price that maximizes the monopolist’s profit? Hint: do you sell to both customers?
There is only one firm that produces NICE sneakers, and its product has no substitutes.
There are two types of customers in the market for NICE sneakers; type H and type L with the following
1. Plot the inverse demand
2. Imagine that there is one customer of each type (2 customers in total) and the firm is not able to identify customer’s type. If the firm wants to charge a fixed fee for entering
the shop and then charge for each pair of sneakers (a two part tariff pricing strategy), what is the fixed entrance fee, and what is the product
monopolist’s profit? Hint: do you sell to both customers?
3. What is the firm’s maximized profit with this pricing strategy?
4. Now, imagine that the firm is able to identify each customer and we have only one consumer of each type. What is the profit if the firm can perfectly identify customer H
and customer L and engages in a two part tariff pricing strategy?
5. Compare the firm’s profit in part (c) and part (d).
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