Let the Inverse Demand Curve for a Monopolist's Product Be $P = 100 - 2 Q$

question 18

Multiple Choice

Let the inverse demand curve for a monopolist's product be $P = 100 - 2 Q$ and the marginal cost of production be constant at $M C = 10$ . Suppose that the firm considers moving from a uniform pricing strategy to a two-block tariff where the first block provides 15 units at a price of $P _ { I } =$ $\$ 70$ and the second block provides an additional 15 units at a price of $P _ { 2 } = \$ 40$ . What is the average outlay schedule for the consumer?

• A) \(\frac { E } { Q } = \$ 70\) if \(Q \leq 15\) and \(\frac { E } { Q } = 70 - 450 / Q\) if \(Q > 15\)
• B) \(\frac { E } { Q } = \$ 70\) if \(Q \leq 15\) and \(\frac { E } { Q } = 40 + 450 / Q\) if \(Q > 15\)
• C) \(\frac { E } { Q } = \$ 70\) if \(Q \leq 15\) and \(\frac { E } { Q } = 40\) if \(Q > 15\)
• D) \(\frac { E } { Q } = \$ 70\) if \(Q \leq 15\) and \(\frac { E } { Q } = 70 - 40 / Q\) if \(Q > 15\)

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Definitions:

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount they actually do pay.

Price Elasticity

The determination of how price alterations influence the market demand for a commodity.

Marginal Value

The additional satisfaction or utility received by consuming one more unit of a good or service.

Consumer's Demand

The desire of purchasers, users, or consumers for specific goods or services at a given price over a specified period.