Consider the following situation for Firm A: Firm A is a monopolist and has MC=30. Demand for Firm A’s product is given by P = 50 - Q.
a) If the monopolist does not price discriminate what is the profit maximizing quantity and price? Now suppose that firm A uses membership fee based price discrimination (sometimes called two part tariff pricing).
b) Calculate the profit maximizing price for each unit of the product with membership fee pricing.
c) Calculate the profit maximizing quantity the firm will sell with membership fee pricing.
d) Calculate the profit maximizing membership fee.
e) By how much will the firm increase profits with membership fee price discrimination versus non-price discrimination?