What will be its profit-maximizing price-producer surplus

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Suppose Netflix’s representative customer’s demand curve in the market for DVD rentals is Q = 20 − 10P, where Q is the number of DVDs rented per month and P is in dollars per DVD. The company’s marginal cost of providing the service is constant at $0.40 per DVD. Assume that Netflix can prevent resale and sharing. (a) If Netflix charges a single price per DVD regardless of how many DVDs a customer rents, what will be its profit-maximizing price? Producer Surplus? (b) Suppose that instead of a single price, the company is offering the following plans: (1) $9.60 for 8 DVDs per month and (2) $14.40 for 16 DVDs per month. Will this pricing strategy allow Netflix to increase Producer Surplus? Explain using graphs

Reference no: EM131097373

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