Consider the market for a product with two types of potential users: group a and group b. Let's assume that the population is normalize to 1 and there are 0.5 individuals of group a and 0.5 individuals of group b. Their corresponding demand curves are as follows.
Pa = 5 - 0.5 * Qa
Pb= 10 - Qb
Let this monopolist face a constant MC of MC=2
(a) What is the optimal (profit-maximizing) two-part tariff that induces both types of consumers to buy?
(b) what is the optimal two part tariff when only high demand consumers purchase the good?
(c) Which of the pricing schemes yields a higher total profit?
(d) Re-do a-b-c and determine which pricing scheme yields to a higher total profit is there are 0.75 individuals of group a and 0.25 individuals of group b