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.

Question

Business

Jamarcus

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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Answers (1)

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Alexander Robbins · Answer 1

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