Assume that there are two complementary products, A and B, where the quantity of
ID: 1188192 • 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
a)
For
perfect competion: MC = P
2 = 20 - qh
qh = 18
2 = 16 - 2ql
ql = 7
b)TR = P*Q
TRh = 20Qh - Q^2
MRh = 20 - 2Qh
Mrl = 16 - 4Ql
Mrh = MCb
20- 2Qh = 2
Qh = 9
MRl =MCb
16 - 4Ql = 2
Ql = 14/4 = 3.5