1) Suppose that a monopolist has zero marginal cost and faces two consumers. The

Question

1) Suppose that a monopolist has zero marginal cost and faces two consumers. The first is Antonio. Antonio has an inverse demand function given by the following schedule:

p(1) = 5

p(2) = 4

p(3) = 3

p(4) = 2

p(5) = 1

p(6) = 0

a) What would Antonio be willing to pay for one unit of the monopolist’s good?

b) What would Antonio be willing to pay for a second unit of the monopolist’s good?

c) How much would Antonio be willing to pay for 5 units of the monopolist’s good?

The second customer is Bianca. Bianca has the following inverse demand function:

p(1) = 8

p(2) = 7.5

p(3) = 7 . . .

p(15) = 1

p(16) = 0.5

p(17) = 0

d) How much would Bianca be willing to pay for 18 units of the monopolist’s good?

e) Suppose the monopolist offered two ways to purchase its good - you can buy 5 units for the amount you answered in part c), or 18 units for the amount you answered in part d). Which offer would Antonio take? Which offer would Bianca take?

f) What is the most Bianca would pay for 18 units of the monopolist’s good, if she were also able to buy 5 units for the amount you answered in part c)?

g) Suppose the monopolist were to offer 5 units for the amount you answered in part c) and 18 units for the amount you answered in part f). How much profit could the monopolist make? Could the monopolist change the packages she offers and make still more money?

h) What are the packages the monopolist could offer that would earn the most money?

Explanation / Answer

As multiple parts are posted, only the 1st 4 parts will be answered.

a. Antonio be willing to pay 5 for one unit of the monopolist’s good, as P(1) = 5

b. Antonio be willing to pay P(2) = 3 for a second unit of the monopolist’s good, as he has already paid 5 for first good, and in total he will pay maximum of 2*P(2) = 2*4=8 for 2 goods. So extra willingness to pay = 8-5 = 3

c. Antonio be willing to pay 5*P(5) = 5*1 = 5 for 5 units of the monopolist’s good

d. Bianca be willing to pay P(18) = 0 for 18 units of the monopolist’s good

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.