Merriwell Corporation Has a Virtual Monopoly in the Ultra-High Speed

Question

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The Answer is a.As a simple monopolist, the firm would set MR = MC
45 - 0.05Q = 30
-0.05Q = -15
Q = 300
P = 45 - 0.025(300)
P = 45 - 7.5
P = 37.50
TR = 37.50 × 300 = $11,250
b.Under a two-part tariff with identical consumers, price and output are determined where P = Mc.45 - 0.025Q = 30
-0.025Q = -15
Q = 600
P = 45 - 0.025(600)
P = 30

a.As a simple monopolist, the firm would set MR = MC 45 - 0.05Q = 30 -0.05Q = -15 Q = 300 P = 45 - 0.025(300) P = 45 - 7.5 P = 37.50 TR = 37.50 × 300 = $11,250 b.Under a two-part tariff with identical consumers, price and output are determined where P = Mc.45 - 0.025Q = 30 -0.025Q = -15 Q = 600 P = 45 - 0.025(600) P = 30 To find access charge, must find the consumer surplus which is area a.Area A = CS = (0.5)(15)(600) = 4,500 Set access charge of $4,500 and a $30 hourly fee.Total revenue under this option is the area under demand curve or $22,500. Total revenue doubles with a two-part tariff as compared with the single hourly rental charge option. c.With differing demands, the firm should set prices slightly above MC. The access charge should then be set to capture all consumer surplus from the buyer with the smallest demand.

To find access charge, must find the consumer surplus which is area a.Area A = CS = (0.5)(15)(600) = 4,500
Set access charge of $4,500 and a $30 hourly fee.Total revenue under this option is the area under demand curve or $22,500. Total revenue doubles with a two-part tariff as compared with the single hourly rental charge option.
c.With differing demands, the firm should set prices slightly above MC. The access charge should then be set to capture all consumer surplus from the buyer with the smallest demand.

Merriwell Corporation Has a Virtual Monopoly in the Ultra-High Speed

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