Question

A monopolist has two specific demanders with demand equations: A = 10 - p and B = 10-2p. This monopolist implements an optimal two-part tariff pricing scheme, under which demanders pay a fixed fee a for the right to consume the good and a uniform price p for each unit consumed. The monopolist chooses a and p to maximize profits. This monopolist produces at constant average and marginal costs of AC = MC = 2. The monopolist's profits are and the average price paid by demander B is I - (NOTE: Write your first answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. Use a period for the decimal separator and a comma to separate groups of thousands. HINT: See Example 14.6.)

Answer 1

Blanks

1) Monopolist profits $ 32

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2) Average price paid = 0

as only type 1 participates in the market

Q QA= 10-p, q8=10-2P, MC=2 If per unit price P=2, 9A=8, qb= 10-4=6 then CSA = 1/(10-2x8= 64/2=32 F C8B = 10 x6 (5-2) = 6x3/2=9. Now of fixed fee a= CSA = 32, then only type A well participate 80 π = a=32 c8ince P=MC, No profit comes from per unit price, profit source is only via fixed fee of a= CSB = 9. Both type will participate, then T= 2xa= 18 so higher profil when a=32, Monopolist T = $32 Average price by B total price TP = at pa 80 An Aug price atp. Dhaam