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15 June, 18:26

Suppose all individuals are identical, and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 - 0.5q, where p is the price in dollars per hour and q is hours per month. The firm faces a constant marginal cost of $1. If the firm will charge a monthly access fee plus a per hour rate, according to two-part tariff pricing, the total monthly access fee that the firm will collect from all the buyers taken together equals:a. $1. b. $5. c. $8. d. $16.

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  1. 15 June, 19:29
    0
    d. $16.

    Explanation:

    The computation of the total monthly access fee is shown below:

    Given that

    p = 5 - 0.5q

    Constant Marginal cost = 1

    Based on the above information,

    As we know that

    In case of the two-part pricing, the monopolist is equal to the hourly rate

    i. e (p) = MC

    5 - 0.5q = 1

    0.5q = 4

    So, q = 8

    And,

    p = MC = $1

    Moreover,

    Total monthly access fees equal the whole consumer surplus

    As per the demand function,

    when q = 0 and p = $5

    So,

    Monthly Access fee is

    = (0.5) * ($5 - 1) x 8

    = 4 * $4

    = $16
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