Homework Help is Here – Start Your Trial Now!
Business
Economics
Inverse demand functions are PA = 10 - QA and PB = 5 - 0.5QB. consumer surplus of smaller demand which is PB. Hence the pro Profit function = 2 x F + (P-MC)*(QA + QB) = 2 x 0.5*(5 - P)*(10 - 2P) + (P-2)*(20 - 3P)

Inverse demand functions are PA = 10 - QA and PB = 5 - 0.5QB. consumer surplus of smaller demand which is PB. Hence the pro Profit function = 2 x F + (P-MC)*(QA + QB) = 2 x 0.5*(5 - P)*(10 - 2P) + (P-2)*(20 - 3P)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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...
See similar textbooks
icon
Related questions
Question

In this solution (see image attached), how did they get "0.5*(5 - P)*(10 - 2P)"?

Inverse demand functions are PA = 10 - QA and PB = 5 - 0.5QB. Under a two part tariff, fixed fee is the 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 = 10 - P^2 + 6P Profit is maximum when 2P = 6 P* = 3 Hence the price per unit is 3 and is same for A and B. Fees amount is F = 0.5*(5 - 3)*(10 - 2*3) = $4 Profit = 4*2 + (3 - 2)*(20 - 3*3) = $19
Transcribed Image Text:Inverse demand functions are PA = 10 - QA and PB = 5 - 0.5QB. Under a two part tariff, fixed fee is the 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 = 10 - P^2 + 6P Profit is maximum when 2P = 6 P* = 3 Hence the price per unit is 3 and is same for A and B. Fees amount is F = 0.5*(5 - 3)*(10 - 2*3) = $4 Profit = 4*2 + (3 - 2)*(20 - 3*3) = $19
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Follow-up Questions
Read through expert solutions to related follow-up questions below.
Follow-up Question

 what would be the average price paid by demander B?

Solution
Bartleby Expert
SEE SOLUTION
Knowledge Booster
Demand and Supply Curves
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS