Question 4 The monopolistic phone firm faces the homogeneous inverse demand function of usage of a poten- tial user P =

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Question 4 The Monopolistic Phone Firm Faces The Homogeneous Inverse Demand Function Of Usage Of A Poten Tial User P 1 (129.33 KiB) Viewed 34 times

Question 4 The monopolistic phone firm faces the homogeneous inverse demand function of usage of a poten- tial user P = 100 - 100qu. We assume that the demand of access and usage are correlated as a consumer purchases an access service only when she obtains enough consumer surplus in the usage market. The firm has the marginal cost of usage MC = 100, and for the simplicity of discussion, we assume marginal cost of access is zero and F = 0. Currently, at period t, the firm offers only one tariff of the Pa = 12.49 and monopolistic price of PM. We call this one-tariff plan (Pa = 12.49, PM) Plan I. Thus, Plan I is Single-Plan Menu Access Fee Usage fee Range/Block Plan I 12.49 PM Any Quantity 4.1 Draw the figure of inverse demand function of usage and marginal cost. Then, find the monop- olistic price PM and per consumer consumption quantity M Grading Weight: 6.25%] 4.2 Under the Plan I tariff of (Pa = 12.49, P.M), does a consumer purchase an access service? If so, how much is her consumer surplus? (Grading Weight: 6.25%] In addition to the original-tariff plan, the following two-plan menu becomes available to consumers. Single-Plan Menu Access Fee Usage fee Range/Block Plan I 12.49 PNT Any Quantity PM 0<Q < 70 Plan II 12.49 70 <Q 4.3 Discuss if the above two-plan menu Pareto dominates the one-plan menu. Which plan does a consumer now choose, and how much is the consumer surplus? (Grading Weight: 6.25%] 4.4 In addition to Plan I and II, add your choice of plan III that Pareto dominates the above two- plan menu. [Grading Weight: 6.25%] Now, we return to the discussion of one-plan menu: Single-Plan Memi Access Fee Usage fee Range/Block Plan I 12.49 PM Any Quantity At the end of period t, in which the monopolist only offers the one-plan menu, the regulator introduces the Sibley Mechanism without advanced notice. 4.5 Concisely explain the Sibley's Mechanism. Then, Show that the regulated and per consumer profit under the Sibley Mechanism in period t + 1 can be approximated as 7+1 ATST+1, where AT SP+1 is a per consumer total surplus improvement between period t and t + 1. (Grading Weight: 6.25% 4.6 If the monopolist discounts the future, what is the optimal firm tariff (Palm, putin) in period Firm: PF t +1? [Grading Weight: 6.25%] 4.7 Concisely describe the consequence of the Sibley Mechanism after period t +1. [Grading Weight: 12.5%]