G-Blast Gaming members pay a monthly fee that allows unlimited hours of online gaming. G-Blast hires you to consult on the best membership pricing scheme. You estimate its typical user’s inverse demand for streaming gaming as P = 600 – 20Q, where Q is hours of streaming. The company can supply an additional hour of streaming to another member at zero marginal cost. What is the highest price that G-Blast should charge for a membership fee?
P= 600-20Q
Pm= Price when Q is zero= 600
G-Blast could charge the maximum membership which is equals to the consumer surplus so that all the surplus in the market could be acquired by the G-Blast.
For consumer surplus, find P and Q. For P and Q:
P= MC
600-20Q= 0
600= 20Q
Q*= 600/20= 30
Use Q= 30 in Demand equation:
P*= 600-20Q= 600-600= 0 (Price for additional hour)
Consumer surplus= Area above price and below demand curve
Consumer surplus= (1/2)(Pm-P*)(Q*)= (1/2)(600-0)(30)= 300 x 30= 9000
G-Blast should charge for a membership fee= 9000
G-Blast Gaming members pay a monthly fee that allows unlimited hours of online gaming. G-Blast hires...
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