Unformatted text preview: only serves high type consumers, and when it serves the two types of consumers. 4. The demand for a product often depends both on the price p and on the service o/ered s . Consider a market where demand is given by: Q = 1 & p + s: A monopolist produces the good at a constant marginal cost c . The service is provided at a cost C ( s ) = 1 2 s 2 : a. Suppose that the monopolist sells directly to the market and chooses both the level of price p and the level of service s . Compute the optimal values of p and s . b. Now suppose that the monopolist must use a retailer to serve the mar-ket. The monopolist chooses a wholesale price w . The retailer chooses both the &nal price p and the level of service s . Compute the optimal levels of w; p and s . Compare the level of service and the price of the &nal product in the presence of a retailer (question b) and when the monopolist sells directly to the market (question a). 1...
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This note was uploaded on 07/06/2009 for the course ECON 146 taught by Professor Campos-ortiz during the Fall '07 term at Brown.
- Fall '07
- Price Discrimination