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Suppose all individuals are identical, and their monthly demand for Internet access from a certain
leading provider can be represented as p = 5 - (1/2)q where p is price in $ per hour and q is hours per
month. The firm faces a constant marginal cost of $1. If the firm will charge a monthly access fee plus a per
hour rate, according to two-part tariff pricing, the total monthly access fee that the firm will collect from all
the buyers taken together equals?

Respuesta :

letmeanswer

Solution:

P = 5 - (q/2)

P = 5 - 0.5q

MC = 1

In two-part pricing, the monopolist equates the hourly rate (p) with MC:

5 - 0.5q = 1

0.5q = 4

q = 8

p = MC = $1

Total monthly access fee equals entire consumer surplus (CS).

From demand function, when q = 0, p = $5 (Reservation price)

Monthly Access fee = CS = Area between demand curve and market price = (1/2) x $(5 - 1) x 8 = 4 $4 = $16

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