disc11 - DISCUSSION SECTION 11 QUESTION 1(Two part tariff...

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DISCUSSION SECTION 11 QUESTION 1 (Two – part tariff) Suppose the demand curves for iphones in the US (by AT&T) and in Europe (by T-Mobile) are Q A = 24 – P Q T = 24 – 2P Suppose that Apple can serve both of its customers (AT&T and T-Mobile) at a constant marginal cost of $6. Due to regulation, Apple can only charge one pricing schedule for both customers, but it can charge a fixed fee to any company that wants to use the iphones and a marginal price for every iphone purchased. So, the pricing schedule for Apple will be T(Q) = A + pQ (a) Assume that Apple decides to set the price equal to marginal cost. What is the entry fee (A) if it both regions have to be served? (b) Find the optimal two-part tariff if Apple serves both regions. (c) Now assume that Apple does not need to serve both regions. What is the best pricing policy? --------------------------------------------------------------------------------------------------------------------- Monopolistic Competition Characteristics: Many firms in the industry Differentiated products, but all the products are close substitutes (reasons for differentiation: product attributes, service, location, brand names) Free entry and exit in the LR -Each firm faces a downward sloping demand curve and has some market power. -However the amount of the product it can sell depends on the prices and on the amount of
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disc11 - DISCUSSION SECTION 11 QUESTION 1(Two part tariff...

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