A lawyer has two clients. She charges a yearly retainer plus a separate fee for each consultation. The retainer is a fee each client pays just to secure the services of the lawyer for the following year, and the consultation fee is the price the lawyer charges to do one legal job for the client. The clients' annual demand curves for legal jobs are Client 1: Q1=23−P Client 2: Q2=19−2P where P is the consultation fee in thousands of dollars for one legal job and Qi is the number of legal jobs done for client i. The lawyer's marginal cost for completing one legal job is 2.8 (also in thousands of dollars). The lawyer wants to determine the fee schedule (retainer and consultation fee) that will maximize her profit. She feels she cannot use a different fee schedule for each client, so she must set one retainer and one consultation fee that apply to both clients. She should charge a consultation fee of $_____ thousand per legal job. (Enter your response rounded to two decimal places.)
A lawyer has two clients. She charges a yearly retainer plus a separate fee for each consultation. The retainer is a fee each client pays just to secure the services of the lawyer for the following year, and the consultation fee is the price the lawyer charges to do one legal job for the client. The clients' annual demand curves for legal jobs are Client 1: Q1=23−P Client 2: Q2=19−2P where P is the consultation fee in thousands of dollars for one legal job and Qi is the number of legal jobs done for client i. The lawyer's marginal cost for completing one legal job is 2.8 (also in thousands of dollars). The lawyer wants to determine the fee schedule (retainer and consultation fee) that will maximize her profit. She feels she cannot use a different fee schedule for each client, so she must set one retainer and one consultation fee that apply to both clients. She should charge a consultation fee of $_____ thousand per legal job. (Enter your response rounded to two decimal places.)
Chapter5: Supply, Demand, And Price: Applications
Section: Chapter Questions
Problem 11QP
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Question
A lawyer has two clients. She charges a yearly retainer plus a separate fee for each consultation. The retainer is a fee each client pays just to secure the services of the lawyer for the following year, and the consultation fee is the price the lawyer charges to do one legal job for the client. The clients' annual demand curves for legal jobs are
Client 1:
Q1=23−P
Client 2: Q2=19−2P
where P is the consultation fee in thousands of dollars for one legal job and
Qi
is the number of legal jobs done for client
i.
The lawyer's marginal cost for completing one legal job is
2.8
(also in thousands of dollars).The lawyer wants to determine the fee schedule (retainer and consultation fee) that will maximize her profit. She feels she cannot use a different fee schedule for each client, so she must set one retainer and one consultation fee that apply to both clients.
She should charge a consultation fee of $_____ thousand per legal job. (Enter your response rounded to two decimal places.)
Expert Solution
Step 1
Given, the demand function:
Marginal cost = $2.8
If the lawyer is unable to charge a different fee, then he will charge the fee that is the consumer surplus of the smaller consumer.
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