Suppose a monopoly produces film and cameras. Consumers demand pictures, which require film and one camera
Two different types of consumers have the following demand for film,
qA = 100 - 10p and qB = 80 - 10p. The monopoly cannot price discriminate in the market for film or the market for cameras, but it can bundle the products. The monopoly produces film at a constant marginal cost of $1 per roll. What price will the monopoly set for film and for cameras?
Profit equals [(8 - p) ? (80 - 10p)] + (p - 1)(180 - 20p).
Maximizing profit subject to p yields 20p - 160 + 180 - 40p + 20 = 0 or 20p = 40 or p = $2.
At that price, the firm charges (1/2)(8 - p)(80 - 10p) = $180 for a camera.
You might also like to view...
The government's budget deficit or surplus equals the...
a) change in outlays divided by change in revenue b) average outlay divided by average revenue c) change in revenue minus change in outlays d) total tax revenue minus total government outlays
Which of the following does NOT occur when a country with floating exchange rates increases the money supply?
A. The current account initially tends to worsen. B. The interest rates changes, causing real spending, production, and income to fall. C. The interest rate changes, causing capital outflows in the short run. D. Aggregate demand increases, which leads to an increase in the price level.
When will the difference between the actual deficit and the structural deficit be the largest?
A. In an inflationary gap B. At full employment C. At potential real GDP D. In a recession
The elasticity of a perfectly horizontal line is ______; the elasticity of a perfectly vertical line is _____.
Fill in the blank(s) with the appropriate word(s).