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The manager of a firm wants to implement two-part pricing for a product having two different types of consumers
The manager of a firm wants to implement two-part pricing for a product having two different types of consumers. The market has 10 consumers with a lower willingness to pay with a demand curve given by Qa = 8 - P, and 10 consumers with a higher willingness to pay with a demand curve given by Qb = 10 - P. The marginal cost (and the average cost) is constant at 2, and there are no fixed costs. Assume that he sets only one entry fee and one usage fee.
Expert Solution
The two-part pricing will mean separate prices for consumers with lower willingness to pay (a):
[Math Processing Error]Qa=8−pTR=8p−p2MR=8−2pMR=MC8−2p=26=2pp=3Qa=5
Hence monopolist will sell the 5 units at the price 3 to customers who are willing to pay lower.
Price for higher willing to pay customers (b):
[Math Processing Error]Qb=10−pTR=10p−p2MR=10−2pMR=MC10−2p=28=2pp=4Qb=6
Hence monopolist will sell the 6 units at the price 4 to customers who are willing to pay higher.
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