Question

Suppose each buyer of type 1has a demand curve given by Q1= 14 - 2P, and each buyer of type 2 has demand curve given by Q2= 18 - 2P. Also assume that MC = AC =1.

The profit maximizing price per unit for a buyer of type 1 is?

When all or nothing or block pricing is used to earn the maximum profit from selling

to a buyer of type 1, ____ units would be sold to this buyer and the total charge for these

units would be _____.

When two part pricing is used to extract the maximum profit from a buyer of type 1,

the price per unit would be ____, and the fee to be able to purchase would be ___.

Answer 1

Now type 1

At eqm MR = MC

Inverse demand function:

P = 7 - Q1/2

MR = 7 - Q1

At eqm, 7-Q1 = 1

Q1* = 6

then P1* = 7-(6/2)

p1*= $4

.

b) block pricing

price = MC = 1

then Quantity demanded by type 1 : Q1 = 14-2*1

Q1 = 12

then maximum price charged for a packet of 12 units

= Consumer surplus when Q1= 12 + total production cost of this packet

= .5*(7-1)*12 + 1*12

= 36 + 12

= $48

units sold = 12

Total charge = $48

.

c) in two part pricing policy

price charged per unit = MC = $1

the fixed fee equals the CS when P = MC

Fixed fee = .5*(7-1)*12

= $36

price per unit = $1

fee to be able to purchase = $36