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Assume that demand for services per period is Pt = 1000 - Qt where Qt is the stock of the durable consumed. Let the discount factor for both consumers and the firm be one. Suppose that the monopolist has a choice: she can either produce a product that is durable at zero marginal cost or she can produce a nondurable product-it provides consumption services for only one period-at marginal cost c. Assume that there are only two periods.

(a) For what values of c would a monopolist that sells its output and cannot commit to prices choose the nondurable product?

(b) For what values of c would a monopolist that leases its output introduce the nondurable product?

(c) What is the efficient solution? How is this related to planned obsolescence?

Reference no: EM13889986

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