The monopolist is following third degree price discrimination. Suppose a monopol

Question

The monopolist is following third degree price discrimination.

Suppose a monopoly provides both Cable TV and broadband access in a city. The fixed costs are Si million per day. The number of households (measured in millions) demanding cable is D1(P) 2-p (where p is measured in S/day). The demand for broadband access is D2(P2)1P. a. Derive inverse demand curves and aggregate consumer surplus as a function of prices. b. Find the Ramsey-Boiteaux prices and associated consumer surplus. c. Find the prices if the company is allowed to recover costs, allocating fixed costs equally. Compare (b) and (c

Explanation / Answer

Solution: Inverse demand functions

p1(D1) = 2 - D1
p2(D2) = 4*(1-D2)

for surplus calculations we need to know the supply functions to find out equilibrium.

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