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Unformatted text preview: ) where & 2 f 1 ; 2 g denotes the consumer type, and where u is a concave function. The seller cannot tell the type of any one consumer, but he estimates that Pr ( & = 1) = q 2 (0 ; 1) : (a) Set up the seller&s maximization problem and ±nd the conditions for the optimal pricing schedule. (b) Suppose that the seller&s marginal cost c = 1 and that the consumers&utility functions take the form: &u ( y ) = 5( & + 1) log (1 + y ) Suppose also that q = 1 = 2 : Find the optimal pricing schedule in this special case. Verify that the solution entails a quantity discount. 1...
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This note was uploaded on 11/09/2010 for the course CAS ec399 taught by Professor Tack during the Spring '10 term at BCUC.
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