Inverse demand functions are PA = 10 - QA and PB = 5 - 0.5QB. Under a two part tariff, fixed fee consumer surplus of smaller demand which is PB. Hence the profit is given by Profit function = 2 x F + (P-MC)*(QA + QB) = 2 x 0.5*(5 - P)*(10 - 2P) + (P - 2)*(20 - 3P) = 50 + 2P^2 - 20P + 20P - 40 - 3P^2 + 6P
Inverse demand functions are PA = 10 - QA and PB = 5 - 0.5QB. Under a two part tariff, fixed fee consumer surplus of smaller demand which is PB. Hence the profit is given by Profit function = 2 x F + (P-MC)*(QA + QB) = 2 x 0.5*(5 - P)*(10 - 2P) + (P - 2)*(20 - 3P) = 50 + 2P^2 - 20P + 20P - 40 - 3P^2 + 6P
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter14: Pricing Techniques And Analysis
Section: Chapter Questions
Problem 2E: The price elasticity of demand for air travel differs radically from first-class (1.3) to...
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