Question

Assume you run a company that offers a product for which all consumers have an identical demand curve. Each consumer’s demand curve is P = 20 – 4Q. The marginal cost of production is $4. Devise an optimal two-part tariff pricing policy.

Answer 1

ANSWER:-

Given date

Demand curve P = 20 - 4Q

Marginal cost MC= $4

Optimal two tariff pricing per unit fee

=> MC = $4

Membership fee = Consumer surplus

=1/2 * (p _Q=0 - p _P=MC ) Q _P=MC

_{Substitute P values and Q values above equation}

_{= 1/2 * (20 - 4) (4)}

_{=1/2 * (16) (4)}

_{=1/2 * 64}

_=64/2

₌₃₂

_{=$ 32}

Therefore

units per fee    = $ 4

membership fee = $ 32

  

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