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Assume a firm faces two customers in the market
Assume a firm faces two customers in the market. Customer 1 has an inverse demand of p = 120 - ql, and Customer 2 has an inverse demand of p = 200 - q2. Marginal cost per unit is constant and equal to $50. Determine the profit-maximizing price and identical lump-sum fee charged to these two customers. For the following questions, assume the firm will always sell to both customers.
The profit-maximizing price is $
. (Enter a numeric response using a real number rounded to two decimal places.)
Expert Solution
Profit maximization price (MC) = $ 50
Lump sum fixed fees equals the Consumer surplus of each group
so,
P = 50
Q1 = 120- 50
= 70
Q2 = 200- 50
= 150
So,
CS1 = .5* (120- 50)* 70
= .5* 70* 70
= 2450
CS2 = .5*(200- 50)* 150
= .5* 150* 150
= 11250
Fixed fee'
from group 1 = $ 2,450
from group 2, = $ 11250
if firm sells to both types
Then,
Profit maximization price = $ 50
Now charge fixed fees equals the lower CS
so that both type of people will participate
So
fixed fee = $ 2,450
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