1. (Two-part tariff) In a monopoly market, there are two consumers, their demand functions are: Q = 5 - p and Q = 10 - 2p. the monopolist 's cost function is C = 0.5q, and he decide to implement the two-part tariff strategy, i.e. each consumer pays a fixed/entry fee (a) and a price (p) for each unit consumed: T(q) = a + pq. Draw the demand curves for both consumers. а. b. At a given price "p", what is the fixed fee "a"? (hint: a is designed to be the consumer surplus of the least eager consumer) c. What is the optimal fixed fee "a" and price "p"?

1. (Two-part tariff) In a monopoly market, there are two consumers, their demand functions are: Q = 5 - p and Q = 10 - 2p. the monopolist 's cost function is C = 0.5q, and he decide to implement the two-part tariff strategy, i.e. each consumer pays a fixed/entry fee (a) and a price (p) for each unit consumed: T(q) = a + pq. Draw the demand curves for both consumers. а. b. At a given price "p", what is the fixed fee "a"? (hint: a is designed to be the consumer surplus of the least eager consumer) c. What is the optimal fixed fee "a" and price "p"?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Monopoly

Section: Chapter Questions

Problem 5CQQ

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