The average consumer at a firm with market power has an inverse demand function of P...

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The average consumer at a firm with market power has an inverse demand function of P...

The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's marginal cost is 2. If the firm decides to introduce two-part pricing, what should be optimal price to charge a consumer for each unit purchased? A=2 B=8 C=16 D=24

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Answer 1

Answer #1

Ans. A = 2

the average consumer has an inverse demand function of P = 10 - Q

the firm's marginal cost ( MC) = $2

in case of two-part pricing, the firm charges the maximum price by extracting whole consumer surplus by setting price equals marginal cost, then

P = MC

P= $ 2

hence, the optimal price in case of two-part pricing is $2

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Answer 2

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