PART 3.1 Answer ONE question from this section. - B.1.1 A firm has two types of customer. High-value customers have util

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Part 3 1 Answer One Question From This Section B 1 1 A Firm Has Two Types Of Customer High Value Customers Have Util 1 (486.55 KiB) Viewed 33 times

PART 3.1 Answer ONE question from this section. - B.1.1 A firm has two types of customer. High-value customers have utility 3 ln(1 + x) р if they buy x units of the good for the price p. Low-value customers have utility 2 ln(1+x) - p if they buy x units of the good for the price p. There are 10 customers of each type. The firm has the marginal cost c<1 for producing each unit of x. If customers do not buy anything they get zero utility (a) The firm chooses to offer x units of the good in a pack for the price p. What conditions must (x, p) satisfy if: (i) Only the high value customers buy it? (ii) Both types of customer buy it? (iii) Both types of customer are willing to buy one pack but are not willing to buy two packs. Explain why this is can occur only if the pack size is large. (b) What is the maximum profit from selling one pack only to high-value customers? What is the maximum profit from selling to both low-value and high-value customers if the customers are restricted to only buy one pack? (c) Show that when costs are high it is better for the firm to only sell to the high types. (d) The firm chooses to offer two different packages: an A pack (2A, PA) and a B pack (XB, PB). List the conditions (XA, PA) and (XB, PB) must satisfy if the high-value customers choose to buy the A pack and the low-value customers choose to buy the B pack. (e) Explain what constraints the packs (XA, PA) and (2B, PB) must satisfy if the firm is choosing these packs to maximise it profits. State your answer in the simplest possible form. (f) Explain what economic interpretations can be placed on the above conditions.