Reference no: EM131088883

A monopolist serving two consumers groups with demand curves PS = 12−QS and PW = 10−QW faces a constant marginal and average variable cost of $2 and considers a variety of two-part tariffs. The monopolist faces no fixed costs. For your calculation, call the first consumer group the “strong-demand” and refer to the second consumer group as the “weak-demand”. Furthermore, assume that each group consists of one consumer only. a (10). Derive the monopolist’s profit with a two-part tariff that sets the per-unit price equal to marginal cost and the fixed fee equal to the implied consumer surplus for the strong-demand group. b (10). Derive the monopolist’s profit with a two-part tariff that sets the per-unit price equal to marginal cost and the fixed fee equal to the consumer surplus for the weak-demand group. 6 ECON 2009G c (20). Derive the profit-maximizing two-part tariff that sets the perunit price PA above the marginal and variable cost and the fixed fee equal to the implied consumer surplus for the weak-demand group. Calculate the implied monopoly profit. Hint: write the monopolist’s profit as a function of PA and solve for the value of PA that maximizes profit. d (10). Derive the monopolist’s profit with a group-specific two-part tariff that sets the per-unit price equal to the marginal cost and the fixed fee equal to the implied consumer surplus for each consumer group. Note that this pricing scheme allows the monopolist to perfectly price discriminate using the fixed fees.