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Homework answers / question archive / A manufacturer of flash drives has a profit function pi = t - q^2, where t is the price charged for a flash drive and q^2 is the cost of producing a drive whose capacity is q gigabytes

A manufacturer of flash drives has a profit function pi = t - q^2, where t is the price charged for a flash drive and q^2 is the cost of producing a drive whose capacity is q gigabytes. A consumer of type theta has a utility function u = theta q - 1, where theta takes on a value of 8 for H-type consumers, or 6 for L-type consumers. There are 100 consumers of each type. A consumer gets zero utility if she does not buy.

(a) Calculate the optimal bundles, (q^cap_L, t^cap _L) and (q^cap_H, t^cap_H), under full information.

(b) Calculate the optimal bundles, (q*_L, t* _L) and (q*_H, t*_H), under asymmetric information.

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