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Unformatted text preview: MR = a/b - 2q t / b t = m + t Solves to give q t = b/2 ( a/b - (m+t) ) This means, the price at t would be (using the demand at t) p t = (a/b + m + t)/2 So how does price increase as t increases? dp t /dt = ½ This means for every mile a consumer is away from the firm, price increase by $½. So who bears the freight cost? Well, the monopoly always sells at a higher price than cost, but looking at his pricing scheme, it seems that the monopolists is paying half of the transportation costs and the consumer is paying the other half. For Question 7, refer to the back of the book. This is another good practice question on bundling and mixed bundling....
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- Summer '06