Monopolist product could be either high quality

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Reference no: EM1312094

Q. Suppose that a monopolist's product could be either high quality (H) or low quality (L).There are 10 identical consumers, every of whom values a low-quality product at vL also a high-quality product at vH=8/5vL.(So if consumers believe that a good is of quality i, then the monopolist can sell 10 units at any price p≤vi.) The cost of producing q units of a good of quality i is 1/10ciq².
If vH/cH=vL/cL=25/16, Elucidate how much would a high-quality producer have to restrict his supply to convince consumers that his product was actually of quality H? [Hint: Quantity for a high-quality firm must be sufficiently small that a low-quality producer would prefer to sell all 10 units also openly reveal them as low quality, rather than disguising these goods as high-quality items.]

Reference no: EM1312094

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