1. 10 consumers, ranked by their value for a network product v = 1...10, are deciding whether to connect to the network. If there are n people on the network, including oneself, then a consumer's willingness to pay equals n x v.
a. What is the highest price at which 4 people connect to the network?
(Hint: the person with v = 9 joins if the price is no higher than 18, since that would mean 2 people in the network: v=9 & v=10.)
b. What is the highest price at which 9 people connect to the network?
2. The demand function for the Msgr social network is related to perceived market share s and actual market share n by the equation:
p = 512s(1-n). Calculate the highest equilibrium price at which Msgr could sustain a market share of 75%.
(Hint: in equilibrium, perceived & actual market share will be the same.)