How much consumer surplus does each type of customer gain

Assignment Help Business Economics

Reference no: EM131097197

A monopolist produces a good at zero marginal cost. It knows that two equal sized subgroups exist in the market for its produce, but cannot differentiate between them by sight. Group I value quality of service highly. The price they are willing to pay for any quality level, Q, is given by PI = 5 – Q Group II are less willing to pay for quality of service, with PII = 3 – 2Q.

The monopolist wishes to practice price discrimination, by offering two price and quality bundles, in the hope that each group will choose the bundle set for it. One economist suggests that the two choices should be: Bundle 1. Quality level Q=5 at a cost to the consumer of 12.5 and Bundle 2. Quality level Q = 1.5 at a cost to the consumer of 2.25

(i) Why may these have been suggested and why would they not be optimal?

(ii) Devise the optimal strategy for the monopolist and determine his profit level under your suggested strategy.

(iii) How much consumer surplus does each type of customer gain?

Reference no: EM131097197

Questions Cloud

Pioneer trial ultramarathon : ABC Inc., sponsors the "Pioneer Trial Ultramarathon," with an advertised first price of $10,000. The rules require the competitors to run 100 miles from the floor of Blackwater Canyon to the top of the Pinnacle Mountain. The rules also provide that A..

Find the subgame perfect nash equilibrium in this game : Consider a duopoly with differentiated goods in which firms choose prices sequentially. Suppose firm 1 chooses its price p1 first. Then, having observed p1, firm 2 chooses its price, p2. Find the subgame perfect Nash equilibrium (SPE) in this game.

What interest rate should bond buyer pay for risk-less bond : The market interest rate is 6%. If they buy a riskless bond they will earn the full interest. Considering the information given, what interest rate should a bond buyer pay for a risk-less bond?

What could cause rise in inflation : When inflation occurs some economic agents gain and some lose. Who would gain and lose if deflation occurs? Why? What will happen to interest rates and investment according to Keynesian and Classical/ Monetarist theories? Is inflation still a possibl..

How much consumer surplus does each type of customer gain : A monopolist produces a good at zero marginal cost. It knows that two equal sized subgroups exist in the market for its produce, but cannot differentiate between them by sight. Group I value quality of service highly. Why may these have been suggeste..

Code of ethics say about financial conflicts of interest : Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling contract submitted by four suppliers. She was evaluating the quotes based on price, target quality levels, and delivery lead time promises. As she was working, he..

Stacey and betsy are contestants on game show : Stacey and Betsy are contestants on a game show. They each select a wrapped box from four choices. They know that one box contains $100 and the other three boxes contain $1000, $10000, $100000. Stacey agrees to trade. Did Betsy’s husband give her goo..

Has the company ever failed to be awarded a contract : Based on your research, has the company ever failed to be awarded a contract? If so, did the company resubmit or cure the alleged defects in the bid? How?

Should blades allow its yen position to be unhedged : BUS332 INTERNATIONAL FINANCE INDIVIDUAL ASSIGNMENT. If Blades uses call options to hedge its yen payables, should it use the call option with the exercise price of $.00756 or the call option with the exercise price of $.00792? Describe the tradeof..

User Account

All Pages