Assume that there are two complementary products, A and B, where the quantity of
ID: 1187874 • Letter: A
Question
Assume that there are two complementary products, A and B, where the quantity of B is
variable relative to a single unit of A. There are two types of consumers, High and Low-demand.
Their inverse demand curves and the constant marginal costs are as follows:
Ph= 20-qh
Pl=16-2ql (I assume H= high and l = low)
MCb=2
(a) If the firm has a monopoly in product A and product B is sold in a competitive market, then
what is the profit-maximizing tie-in sale price of product A?
(b) If the firm has a monopoly in both products, then what is the profit-maximizing tie-in sale
price of product A?
(c) If the firm figures out a way to ‘technologically tie’ products A and B (such that each product
A comes with a fixed quantity of B), then what are the profit-maximizing (block) prices for
each consumer-specific tied product?
Explanation / Answer
Answer is in comment