Question 4 OCP is the monopoly seller of Soma with a constant marginal cost of production of $1 a unit. There are 100 potential consumers of Soma who belong to one of two types, heavy and light. There are an equal number of each type. The inverse demand curve of heavy users is pH(q) = 9.4 – 2q while that of light users is pL(q) = 3– q. We also assume there is no trade between different types of buyers. 1. If OCP could perfectly discriminate between the two types of buyers what two-part tariff should they charge each type to maximize profit? 2. Suppose the Government were to ban such price discrimination and required OCP to set a single two-part tariff. What would the profit-maximizing two-part tariff be? OCP cannot forbid any buyer from purchasing at the announced tariff.
Question 4 OCP is the monopoly seller of Soma with a constant marginal cost of production of $1 a unit. There are 100 potential consumers of Soma who belong to one of two types, heavy and light. There are an equal number of each type. The inverse demand curve of heavy users is pH(q) = 9.4 – 2q while that of light users is pL(q) = 3– q. We also assume there is no trade between different types of buyers. 1. If OCP could perfectly discriminate between the two types of buyers what two-part tariff should they charge each type to maximize profit? 2. Suppose the Government were to ban such price discrimination and required OCP to set a single two-part tariff. What would the profit-maximizing two-part tariff be? OCP cannot forbid any buyer from purchasing at the announced tariff.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.6P
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Transcribed Image Text:Question 4
OCP is the monopoly seller of Soma with a constant marginal cost of production of $1 a unit.
There are 100 potential consumers of Soma who belong to one of two types, heavy and light. There
are an equal number of each type. The inverse demand curve of heavy users is pH(q) = 9.4 – 2q
while that of light users is pL(q) = 3– q. We also assume there is no trade between different types
of buyers.
1. If OCP could perfectly discriminate between the two types of buyers what two-part tariff
should they charge each type to maximize profit?
2. Suppose the Government were to ban such price discrimination and required OCP to set a
single two-part tariff. What would the profit-maximizing two-part tariff be? OCP cannot
forbid any buyer from purchasing at the announced tariff.
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