You are an executive for Super Computer, Inc. (SC), which rents out super computers. SC receives a fixed rental payment per time period in exchange for the right to unlimited computing at a rate of P cents per second. SC has two types of potential customers of equal number—10 businesses and 10 academic institutions. Each business customer has the demand function: Q=14−P, where Q is in millions of seconds per month; each academic institution has the demand: Q=10−P. The marginal cost to SC of additional computing is 2 cents per second, regardless of volume. a. Suppose that you could separate business and academic customers. What rental fee and usage fee would you charge each group? What would be your profits? (Round all answers to the nearest integer) For business users, the rental fee would be$720,000 per month and the usage fee is 2 cents per second. For academic institutions, the rental fee would be $320,000 per month and the usage fee is 2 cents per second. SC's total profits are $10,400,000 per month. b. Suppose you were unable to keep the two types of customers separate and charged a zero rental fee. What usage fee would maximize your profits? What would be your profits? The profit maximizing usage fee is 7 cents per second. SC's profits are $5 Million per month. I need help with this part: Suppose you set up one two-part tariff—that is, you set one rental and one usage fee that both business and academic customers pay. What usage and rental fees would you set? What would be your profits? The profit maximizing rental fee is $per month (round your answer to the nearest dollar) and the usage fee is cents per second. (round your answer to one decimal place) SC's profits are $__________per month. (round your answer to the nearest dollar)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You are an executive for Super Computer, Inc. (SC), which rents out super computers. SC receives a fixed rental payment per time period in exchange for the right to unlimited computing at a rate of P cents per second. SC has two types of potential customers of equal number—10 businesses and 10 academic institutions.

Each business customer has the demand function:

Q=14−P, where Q is in millions of seconds per month; each academic institution has the demand: Q=10−P.

The marginal cost to SC of additional computing is 2 cents per second, regardless of volume.

a. Suppose that you could separate business and academic customers. What rental fee and usage fee would you charge each group? What would be your profits? (Round all answers to the nearest integer)

For business users, the rental fee would be$720,000
per month and the usage fee is 2 cents per second.

For academic institutions, the rental fee would be

$320,000 per month and the usage fee is

2 cents per second.

SC's total profits are $10,400,000 per month.

b. Suppose you were unable to keep the two types of customers separate and charged a zero rental fee. What usage fee would maximize your profits? What would be your profits?

The profit maximizing usage fee is 7 cents per second.

SC's profits are $5 Million per month.

I need help with this part:

Suppose you set up one two-part tariff—that is, you set one rental and one usage fee that both business and academic customers pay. What usage and rental fees would you set? What would be your profits?

The profit maximizing rental fee is $__________per month (round your answer to the nearest dollar) and the usage fee is ________cents per second. (round your answer to one decimal place)

SC's profits are $____________________per month. (round your answer to the nearest dollar)

Expert Solution

Step 1

With a two part tariff and no price discrimination, the rental fees will be equal to consumer surplus of academic institution.

RENT= CS_A

RENT= $\frac{1}{2} \times (10 - P) (10 - P)$

= $\frac{1}{2} \times {(10 - P)}^{2}$

TR= total Rental fees + usage fees

=20(RENT)+(Q_A+Q_B)(P)

TC= 2(Q_A+Q_B)

Q_A= 10(10-P)

Q_B= 10(14-P)

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