Question

12. A price-searcher firm wants to try a two-part tariff. The firm's marginal cost is a constant $3 and it will charge that as the per unit price. To complicate things, the firm has two different groups of consumers. There are 50 consumers who have a demand function given by: q_D=18-0.5P. There are also 20 consumers who have a demand function given by: q_D=18-0.5P.

If the firm charges a fee that is too high, then it may lose all of the customers of the low-willingness-to-pay group. That could be bad for their producer surplus, but it might also be worth it depending on the number of consumers lost and the size of the higher fee.

Determine whether the producer surplus for the firm is greater when it charges a higher fee and has fewer customers or charge the lower fee and have more customers. Then enter the dollar amount of producer surplus.

(Do not include a $ sign in your response. Round to the nearest two decimal places if necessary.)

Answer 1