Reference no: EM133337930

Assignment:

Consider a monopolistic Internet Service Provider that wishes to find the revenue maximizing price for the service. There are N potential consumers of the service with a value of consumption that uniformly varies between [a, b]. The network has a fixed and variable delay. The fixed delay (or latency), de- noted by L, does not depend on the number of users, i.e., this amount of delay is incurred regardless of the number of users. The variable component of the delay (or the congestion delay) is linear in the number of users, and is given by a constant k times n, the number of users. The cost of delay (measured in dollars per month) with n users is given by L + kn.

Assuming the following,

N =10000;a=10,b=100,L=20,k=2

1. How many users that will consume the service at a price of $30 per month? 2. What is the revenue generated at this price ($30 per month)?

2. What is the revenue maximizing price?

3. Does the revenue maximizing price depend on the size of the market (N)? Why or Why not? (Hint: Numerically find out the revenue maximizing price for different values of N and observe what happens).