Question

Use the following information in answering questions 1 - 9. Assume persons of type 1 value quality level z and the product itself such that the inverse demand for the product is given by P, = 10 - Q. + 2z. Similarly, for a person of type 2 the inverse demand for the product is given by P2 = 24 - 2Q2 + 6z. The AC and MC of producing the product with quality z is MC = AC= 2 + 4z. Assume that z can be either equal to 0 or 1.

Answer 1

Date/ DELTA PONO Que) Given: Type I Do function Cinverse) PL=10- QL+22 Type I DD funchon (inverse) P2-10_ P2 = 24 - 2 Q2 +62 quality is denoted by 2 and_z_ſither can be 0.04 MC= ACE 2+42 apart) if quality=0 p= 6/unit -Type I :_ 2224243t 62 -p2 = 04-2Q2+ 6 z Steps: putting 2= 0 P2 = 24-202 +6CO) P2 = 24-202 step I:- putting p = 6 6 = 24202 2Q2 = 18 | Q2-91 now; P2 = 24-202 - P2 o 24 Q2 | 12 o using these 2 point we can draw a demand cure.

DELTA OM DD curve of Type I person Price o demand curve -Price te line 6'12_1324 Q ty consumer Asurplus is the area above price level Land below demand curve Consumer Vurplus = I x 624-6x9 - 1x48 xq 9x q = 81 units d.) 81 units of consumer luaplus is._colorectoption.

pant) 2 =|_phice = 18 per unit Type I demand cuwer - P2 = 04- 2 Q2 + 62 Step I: Ba_Putting z3|| P2 = @4-202 + 6 (1) = 24 + 6 - 2 Q2 = 30-2 Q2 StepI: Putting Price = 18 | 18 = 30-2 Q2 202 = 30-18 2 Q2 = 1? Q2 = 6 Now P2 = 30-202 P2 = 0 / 30 Q2 = 1510 Price = [XC30-18) X6 = [XXX 6_ 30£ co वे = 6x6 = 36 - ho 20 30 40 alu ]