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Suppose we have people with differing taste on a variety of the product that a monopolist is producing. Everyone values their preferred variety at 240. However the monopolist does not produce all varieties and therefore consumers that do not get their preferred variety discount the value of the product. This discount is linked to how far the monopolist's variety is from their preferred one. To make things simple we can imagine that tastes of consumers are uniformly distributed along a line with a normalized length of 1. each person will discount the value of the product by how far their preferred product is situated on that line from the monopolist's variety. Let the discount per unit of distance be equal to 18. Suppose there are 6000000 consumers with preferences that are uniformly distributed on the line (i.e. tastes of consumers are equally distanced from each other with 6000000 of them along the line). Suppose the monopolist decides to come up with 1 varieties of the product where each of this variety has a fixed cost of 80000, and the marginal cost of production is 7 What is the price the monopolist will charge to serve all 6000000 consumers Now suppose the monopolist is deciding to serve all consumers but choosing how much variety to output what is the profit function of the monopolist as a function of the number of variety of the product (n) What is the optimal number of different variety of the product What is the price charged by the monopolist Now suppose the monopolist is deciding on whether it wants to serve all consumers. Look at each variety of the product, what is the price charged by the monopolist if it does not sell to every consumer Based on the last answer, the monopolist will Oonly part of the market Othe whole market

Suppose we have people with differing taste on a variety of the product that a monopolist is producing. Everyone values their preferred variety at 240. However the monopolist does not produce all varieties and therefore consumers that do not get their preferred variety discount the value of the product. This discount is linked to how far the monopolist's variety is from their preferred one. To make things simple we can imagine that tastes of consumers are uniformly distributed along a line with a normalized length of 1. each person will discount the value of the product by how far their preferred product is situated on that line from the monopolist's variety. Let the discount per unit of distance be equal to 18. Suppose there are 6000000 consumers with preferences that are uniformly distributed on the line (i.e. tastes of consumers are equally distanced from each other with 6000000 of them along the line). Suppose the monopolist decides to come up with 1 varieties of the product where each of this variety has a fixed cost of 80000, and the marginal cost of production is 7 What is the price the monopolist will charge to serve all 6000000 consumers Now suppose the monopolist is deciding to serve all consumers but choosing how much variety to output what is the profit function of the monopolist as a function of the number of variety of the product (n) What is the optimal number of different variety of the product What is the price charged by the monopolist Now suppose the monopolist is deciding on whether it wants to serve all consumers. Look at each variety of the product, what is the price charged by the monopolist if it does not sell to every consumer Based on the last answer, the monopolist will Oonly part of the market Othe whole market

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter18: Asymmetric Information
Section: Chapter Questions
Problem 18.6P
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Suppose we have people with differing taste on a variety of the product that a monopolist is producing. Everyone values their preferred variety at 240. However the monopolist does not produce all varieties and therefore consumers that do not get their preferred variety discount the value of the product. This discount is linked to how far the monopolist's variety is from their preferred one. To make things simple we can imagine that tastes of consumers are uniformly distributed along a line with a normalized length of 1. each person will discount the value of the product by how far their preferred product is situated on that line from the monopolist's variety. Let the discount per unit of distance be equal to 18. Suppose there are 6000000 consumers with preferences that are uniformly distributed on the line (i.e. tastes of consumers are equally distanced from each other with 6000000 of them along the line). Suppose the monopolist decides to come up with 1 varieties of the product where each of this variety has a fixed cost of 80000, and the marginal cost of production is 7 What is the price the monopolist will charge to serve all 6000000 consumers Now suppose the monopolist is deciding to serve all consumers but choosing how much variety to output what is the profit function of the monopolist as a function of the number of variety of the product (n) What is the optimal number of different variety of the product What is the price charged by the monopolist Now suppose the monopolist is deciding on whether it wants to serve all consumers. Look at each variety of the product, what is the price charged by the monopolist if it does not sell to every consumer Based on the last answer, the monopolist will Oonly part of the market Othe whole market
Transcribed Image Text:Suppose we have people with differing taste on a variety of the product that a monopolist is producing. Everyone values their preferred variety at 240. However the monopolist does not produce all varieties and therefore consumers that do not get their preferred variety discount the value of the product. This discount is linked to how far the monopolist's variety is from their preferred one. To make things simple we can imagine that tastes of consumers are uniformly distributed along a line with a normalized length of 1. each person will discount the value of the product by how far their preferred product is situated on that line from the monopolist's variety. Let the discount per unit of distance be equal to 18. Suppose there are 6000000 consumers with preferences that are uniformly distributed on the line (i.e. tastes of consumers are equally distanced from each other with 6000000 of them along the line). Suppose the monopolist decides to come up with 1 varieties of the product where each of this variety has a fixed cost of 80000, and the marginal cost of production is 7 What is the price the monopolist will charge to serve all 6000000 consumers Now suppose the monopolist is deciding to serve all consumers but choosing how much variety to output what is the profit function of the monopolist as a function of the number of variety of the product (n) What is the optimal number of different variety of the product What is the price charged by the monopolist Now suppose the monopolist is deciding on whether it wants to serve all consumers. Look at each variety of the product, what is the price charged by the monopolist if it does not sell to every consumer Based on the last answer, the monopolist will Oonly part of the market Othe whole market
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