Which of the following per-minute prices in the plan intended for low- demand consumers is the most pro

Subject: Economics    / General Economics
ADDITIONAL QUESTIONS NOT COVERED IN CLASS
1. (derived from In-Text Exercises 18.4 and 18.5, Chapter 18.4)

Suppose that Clearvoice
serves 100 high-demand consumers, each of whose monthly demand curve for minutes
of wireless service is Q‘}, = 100 — 100P, and 200 low—demand consumers, each of whose
monthly demand curves is Q: = 50 — IDOP, where P is the per-minute price in dollars.
Its marginal cost is 10 cents per minute. (a) If it sells to both types of consumers, which of the following per—minute prices
is the most pro?table: 10, 15, 20, or 25 cents? (For simplicity, assume that
Clearvoice can set its ?xed fee in units smaller than a penny so that it is able to
extract all of the low-demand consumer’s surplus.) (b) Suppose it sells both types of consumers, consumers having a per—minute price in
that plan. Which of the following per-minute prices in the plan intended for low-
demand consumers is the most pro?table: 10, 15, 20, or 25 cents? (For simplicity,
assume that Clearvoice can set its ?xed fees in units smaller than a penny.)

2. (derived from In—Text Exercise 18.5, Chapter 18.5, page 655) Suppose that a monopolist
seller of spreadsheets and word processor programs faces four types of consumers, A—D.
The willingness to pay for a spreadsheet is \$0 for types A and B, and \$100 for types C
and D. The willingness to pay for a word processor is \$0 for types A and C, and \$100
for types B and D. The marginal cost of producing either good is zero. There are 1000
consumers of each type. Compare the pro?ts from independently selling the two goods
and selling a bundle. Which is more pro?table?

3. (derived from In-Text Exercise 17.4, Chapter 17.4) Suppose that in Figure 17.8, the
30 consumers whose willingness to pay for a car wash is above \$22 place no value on
hand washing, while all other consumers are willing to pay an extra \$5 for the service.
Hand washing costs \$5 extra. (a) To maximize aggregate surplus, should hand washing be offered?
(b) What about to maximize aggregate surplus?
(c) What if hand washing costs \$4.99 extra?

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