Two part pricing strategy
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You are the manager of a monopoly. A typical consumer's inverse demand function for your firm's product is P=100-2Q and your cost function is C(Q)=20Q.
a. Determine the optimal two part pricing strategy.
b. How much additional profit do you earn using a two part pricing strategy compared with charging the consumer a per unit price?
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Solution Summary
Solution describes the steps to calculate a product's price by using two part pricing strategy. It also calculates additional profit earned by using this strategy.
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a. Determine the optimal two part pricing strategy.
According to two part pricing strategy, a monopolist will maximize profits by charging usage price equal to
Marginal Cost and setting initial price at consumer surplus.
Marginal Cost=dC(Q)/dQ=20
Let us see what is value of Price at which ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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