This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: After graduation, you start an internet-based firm that allows people to buy and sell books online. ... (Read 56 times)

dmcintosh

  • Hero Member
  • *****
  • Posts: 517
on: Jul 1, 2018
After graduation, you start an internet-based firm that allows people to buy and sell books online. Based on your market research, you believe there are two basic types of customers.
 
  The first type is the casual reader who has relatively low willingness-to-pay for your services, and their annual demand is Q1 = 30 - 40P where Q1 is the number of books traded per year and P is the price you charge per book traded. The second type of customer is the avid reader who has relatively high willingness-to-pay for your services, and their demand is Q2 = 100 - 50P. The marginal cost of your online service is 0.40 per book traded. a. If you set your usage fee equal to the marginal cost, how many books will each type of customer trade on your system? What is the consumer surplus enjoyed by each type of customer? b. What is the optimal entry fee that you should charge under a two-part tariff pricing scheme for access to your online market? How much consumer surplus is left for the two types of customers after they pay the entry fee and usage fee?

Question 2

Refer to Figure 9.5. If the government establishes a price floor of 2.50, consumer surplus will
 
  A) fall by 50.
  B) fall by 150.
  C) remain the same.
  D) rise by 50.
  E) rise by 150.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

jointhecircus

  • Sr. Member
  • ****
  • Posts: 343
Reply #1 on: Jul 1, 2018
Answer to Question 1

a.
For the first group (casual readers), the quantity of book trading services demanded is Q1 = 30 - 40(0.40 ) = 14 books per year. The price-dependent demand curve for these customers is P = 0.75  0.025Q1, and the consumer surplus based on marginal cost pricing is CS1 = 14(0.75 - 0.40 )/2 = 2.45 per year. For the second group (avid readers), the quantity of book trading services demanded is Q2 = 100 - 50(0.40 ) = 80 books per year. The price-dependent demand curve for these customers is P = 2 - 0.02Q2, and the consumer surplus based on marginal cost pricing is CS2 = 80(2 - 0.40)/2 = 64.00 per year.

b.
The optimal entry fee equals the consumer surplus for the casual readers, which is 2.45 based on the results from part a. After this entry fee is imposed, the casual readers have zero consumer surplus remaining, and the avid readers have 61.55 consumer surplus remaining.

Answer to Question 2

B


dmcintosh

  • Member
  • Posts: 517
Reply 2 on: Jul 1, 2018
Excellent

sarah_brady415

  • Member
  • Posts: 328
Reply 3 on: Yesterday
Great answer, keep it coming :)

« previous next »
 

Did you know?

The first successful kidney transplant was performed in 1954 and occurred in Boston. A kidney from an identical twin was transplanted into his dying brother's body and was not rejected because it did not appear foreign to his body.

Did you know?

Fatal fungal infections may be able to resist newer antifungal drugs. Globally, fungal infections are often fatal due to the lack of access to multiple antifungals, which may be required to be utilized in combination. Single antifungals may not be enough to stop a fungal infection from causing the death of a patient.

Did you know?

A strange skin disease referred to as Morgellons has occurred in the southern United States and in California. Symptoms include slowly healing sores, joint pain, persistent fatigue, and a sensation of things crawling through the skin. Another symptom is strange-looking, threadlike extrusions coming out of the skin.

Did you know?

Signs and symptoms that may signify an eye tumor include general blurred vision, bulging eye(s), double vision, a sensation of a foreign body in the eye(s), iris defects, limited ability to move the eyelid(s), limited ability to move the eye(s), pain or discomfort in or around the eyes or eyelids, red or pink eyes, white or cloud spots on the eye(s), colored spots on the eyelid(s), swelling around the eyes, swollen eyelid(s), and general vision loss.

Did you know?

Atropine was named after the Greek goddess Atropos, the oldest and ugliest of the three sisters known as the Fates, who controlled the destiny of men.

Phylogenetic tree based on the distribution of 120 alleles in 42 populations from around the world, Phylogenetic tree based on the distribution of 120 alleles in 42 populations from around the world,
Ethnographic studies of the Baka pygmies of central Cameroon, and other people who still live as ... Ethnographic studies of the Baka pygmies of central Cameroon, and other people who still live as ...
Abdominal thrusts are delivered with a firm thrust into the patient’s abdomen with an upward ... Abdominal thrusts are delivered with a firm thrust into the patient’s abdomen with an upward ...
A clone-by-clone, or map-based A clone-by-clone, or map-based
Famous People with Parkinson's Disease Famous People with Parkinson's Disease
Cladogram Based On DNA Sequence Cladogram Based On DNA Sequence
Video: Factors that influence muscle tension - Sarcomere length and force, understretched and overstretched

For a complete list of videos, visit our video library