Assume two products, 1 and 2 are produced at zero MC, but there are fixed costs of €900. The demands for the products are: P1 = 7 - 0.02q1 and P2 = 5 – 0.01q2. (i) Determine the Ramsey prices for the two goods, as well as the consumer surplus from both markets. (ii) Assume that last year the prices were P1 = 2 and P2 = 4. Compare these prices to those found in (i) and argue if the CS is better, worse or identical to (i).
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