Consider a durable good monopolist whose product is usable for only 2 periods. However, each consumer can benefit from the product only for one period. The quality of the product does not diminish over time and thus those who bought the product in period 1 can sell it in period 2 (if they find buyers). Assume also that the production cost is zero. The inverse demand curve in each period is given by P = 16 –Q where Q denotes the quantity available at that period. Both the consumers and the monopolist use a discount factor d is an element of [0,1] to discount future income or profits.
a) Assuming that the monopolist can commit to future prices and quantities, determine the optimal quantities and price in each period. What is the monopoly’s profit? Indicate whether your answer depends on the discount factor d
b) Assume now that the monopolist cannot commit to second period prices and quantities. Determine the optimal quantities and price in each period. What is the monopoly’s profit? Indicate whether your answer depends on the discount factor d