Dropbox observes that there are two types of demand for its storage services: business and private individuals. The businesses’ demand curve is QB= 200−2PB, where QB is the amount of storage that businesses would like to purchase and PB is the price charged per unit of storage (e.g. pergigabyte) to businesses. The individuals’ demand curve is QI = 50−PI, where QI is the amount of storage that individuals would like to purchase and PI is the price charged per unit of storageto individuals. Dropbox’s cost function is given by C(Q) = 10Q+ 100 where Q=QB+QI. a. Suppose Dropbox can price discriminate between the two groups. Calculate the amount of storage it sells to each group, the two prices and total profits. b. Calculate consumer and producer surplus under price discrimination c. Suppose the government forbids price discrimination. Calculate the optimal unique price the monopolist would charge and her profits. Would the monopolist choose to serve bothbusinesses and individuals? d. Now calculate the consumer and producer surplus if price discrimination is forbidden. Using total surplus as a measure of welfare, is society better off or worse off after this change is introduced?
Dropbox observes that there are two types of demand for its storage services: business and private individuals. The businesses’ demand curve is QB= 200−2PB, where QB is the amount of storage that businesses would like to purchase and PB is the price charged per unit of storage (e.g. pergigabyte) to businesses. The individuals’ demand curve is QI = 50−PI, where QI is the amount of storage that individuals would like to purchase and PI is the price charged per unit of storageto individuals. Dropbox’s cost function is given by C(Q) = 10Q+ 100 where Q=QB+QI.
a. Suppose Dropbox can price discriminate between the two groups. Calculate the amount of storage it sells to each group, the two prices and total profits.
b. Calculate
c. Suppose the government forbids price discrimination. Calculate the optimal unique price the monopolist would charge and her profits. Would the monopolist choose to serve bothbusinesses and individuals?
d. Now calculate the consumer and producer surplus if price discrimination is forbidden. Using total surplus as a measure of welfare, is society better off or worse off after this change is introduced?
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