Firm A is planning to rollout a new nationwide wireless telephone service next month. Its potential customers are either light users or regular users and these exist in equal proportion in the population. The firm must decide between offering a plan with 300 minutes, 600 minutes, or offering both plans. Each of these options costs the firm $10 to provide, and consumers’
Each potential customer calculates the net payoff (benefit minus price) that he would get from each of the plans and buys the plan that gives the highest net payoff, so long as the payoff is nonnegative. Assume that if both plans give an equal, non-negative payoff the customer buys the 600 minute plan.
a) What prices should the firm set if it wants to offer both plans, such that light users purchase the 300 minute plan and regular users purchase the 600 minute plan?
b) How much higher is a regular user’s payoff under the scenario in part (a) above than if the firm could perfectly
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