PROBLEM II durable good. There are only two consumers, where one consumer hasaa
ID: 1147750 • Letter: P
Question
PROBLEM II durable good. There are only two consumers, where one consumer hasaa willingness to pay of 35 and the other has that of 20. The market for the durable good only lasts two periods. In each period the monopolist sets a price and the consumers decide whether to purchase or not. Suppose that both consumers have the same discount factor and the monopolist has a discount factor Suppose that there is a monopolist with two units of a Q5. When = 0.8 and = 0.95, what is the profit-maximizing price in period 1 for the monopolist? (a) 23 (b) 22 (d) 20 (e) 35 Q6. Under what condition on and does the consumer with the higher willingness to pay only buy the good in period 1 at the monopolist's profit-maximizing prices? (a) > (2+6)/3 (b) 12 (1 +27)/3 (e) 72 (1 +35)/4Explanation / Answer
5. Profit is maximized when the total revenue is equal to the total cost.
Simple formula PROFIT- TR-TC
Where TR is the total revenue and
TC is the total cost
The following are the steps to calculate profit maximisation
a. Calculate MR by taking TR with collaboration with the quantity of the commodity.
b. Calculate MC by taking TC i. e, total cost with cost of the commodity.
c. Now as discussed above MR=MC .
Answer is (e)
Answer 6. Since the consumers are willing to pay only discount of 0.8 which is only possible in case e. The consumer will be satisfied his his willingness whereas the monopolistic provide the same level of discount for both of his consumers for durable goods, irrespective of the fact that the both are willing to pay different price.
Answer is e situation.
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