26 Jul DETERMINE THE FIRMS BEST SECOND- DEGREE (TWO PART TARIFF) PRICING SCHEME.
and lo Show more A monopolist faces a market evenly split high valuation con- sumers with demand Ph =10?yh and low valuation consumers with demand Pl =8?2yl For convenience suppose the firm has a marginal cost equal to zero. Ar- bitrage is impossible for this good and so the firm is free to use two-part tariffs as pricing scheme: the firm can charge a fee as well as a per unit price. a. Suppose the firm can observe group status. Determine the firms profit-maximizing third degree two part tariff pricing scheme for these groups. Show this outcome on a graph. b. Now suppose the firm cannot observe group status and so must use second degree price discrimination. Determine the firms best second- degree (two part tariff) pricing scheme. Show this outcome on a graph and explain why your answer is the best outcome for the firm. c. Which of these two outcomes (second degree and third degree) is better from the economys view? Show less
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