Levels Tought:
Elementary,Middle School,High School,College,University,PHD
Teaching Since: | Apr 2017 |
Last Sign in: | 234 Weeks Ago, 6 Days Ago |
Questions Answered: | 12843 |
Tutorials Posted: | 12834 |
MBA, Ph.D in Management
Harvard university
Feb-1997 - Aug-2003
Professor
Strayer University
Jan-2007 - Present
1.    The Clear Line Communications Corporation currently has the following linear structure of prices for long–distance calls between Durham and India: $2.00 for each minute of calls. Market research indicates that there are five types of consumers in the market (equal numbers of each type) demanding the following numbers of minutes/day at various prices/minute.
Â
                                      $1          $2             $3                   $4               $5
 Â
            Type1             5min     4min            3min         2min          1min
         Â
            Type2            4min     3min         2min          1min          0min
Â
            Type3            3min     2min         1min          0min          0min
Â
            Type4             2min    1min         0min          0min          0min
Â
            Type5            1min     0min         0min          0min          0min
Â
According to this table, Type 1 customer will buy 1 minute at $5, an additional 1 minute at $4, another incremental one minute at $3, yet another minute at $2, and finally one more minute at $1. Thus the Type 1 consumer would buy a total of 5 minutes per day at the price of $1 / minute, whereas only 1 minute per day at the high price of $5/minute. Assume zero marginal and fixed costs.
Â
a)         Compute the profit–maximizing linear pricing scheme. (In a linear pricing scheme, every minute is priced the same.
Â
b)        Compute the profit –maximizing quantity –discount scheme. (HINT: Find what is the best price that you should charge for each minute.)
Â
c)         If the quantity–discount scheme yields higher profits than the linear scheme, why does it do so? If not, why not?
-----------