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Homework answers / question archive / Assume a firm faces two customers in the market

Assume a firm faces two customers in the market

Economics

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.) 
 

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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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