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Homework answers / question archive / Suppose that you are a manager for Mega Accounting corporation, a firm specializing in accounting software
Suppose that you are a manager for Mega Accounting corporation, a firm specializing in accounting software. You know that you have two types of clients who use your software. Type A's inverse demand function is given by p = 48 - 8q and type B's inverse demand function is given by p = 28 -13q. Your firm faces a constant marginal cost curve at $20 Suppose you can prevent buyers from trading with each other.
What would be the price you would set in market B?
Since you can prevent consumers from trading with each other, you can price discriminate, i.e., charging a different price for different types of consumers. In each market, you would follow monopoly pricing and set prices such that the marginal revenue is equal to marginal cost. Using the twice as steep rule, the marginal revenue from selling in market B is:
The marginal cost is 20, thus the profit-maximizing quantity is:
The price you should charge = 28 - 13 * 0.31 = 23.97.
