12 March, 23:46

# Suppose all individuals are identical, and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 - 0.5q, where p is the price in dollars per hour and q is hours per month. The firm faces a constant marginal cost of \$1. If the firm will charge a monthly access fee plus a per hour rate, according to two-part tariff pricing, the total monthly access fee that the firm will collect from all the buyers taken together equals:a. \$1. b. \$5. c. \$8. d. \$16.

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1. 13 March, 00:46
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d. \$16.

Explanation:

The computation of the total monthly access fee is shown below:

Given that

p = 5 - 0.5q

Constant Marginal cost = 1

Based on the above information,

As we know that

In case of the two-part pricing, the monopolist is equal to the hourly rate

i. e (p) = MC

5 - 0.5q = 1

0.5q = 4

So, q = 8

And,

p = MC = \$1

Moreover,

Total monthly access fees equal the whole consumer surplus

As per the demand function,

when q = 0 and p = \$5

So,

Monthly Access fee is

= (0.5) * (\$5 - 1) x 8

= 4 * \$4

= \$16