Let the inverse demand curve for a monopolist's product be P = 100 - 2Q and the marginal cost of production be constant at MC = 10. Suppose that the firm considers moving from a uniform pricing strategy to a two-block tariff where the first block provides 15 units at a price of P₁ = $70 and the second block provides an additional 15 units at a price of P₂ = $40. What is the average outlay schedule for the consumer? A) $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 70 - 450 / Q$ if Q15 B) $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 40 + 450 / Q$ if Q15 C) $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 40$ if Q15 D) $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 70 - 40 / Q$ if Q15

Question

Let the inverse demand curve for a monopolist's product be P = 100 - 2Q and the marginal cost of production be constant at MC = 10. Suppose that the firm considers moving from a uniform pricing strategy to a two-block tariff where the first block provides 15 units at a price of P₁ = $70 and the second block provides an additional 15 units at a price of P₂ = $40. What is the average outlay schedule for the consumer? A) $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 70 - 450 / Q$ if Q>15 B) $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 40 + 450 / Q$ if Q>15 C) $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 40$ if Q>15 D) $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 70 - 40 / Q$ if Q>15

Quizplus · Accepted Answer

The average outlay schedule is calculated by dividing the total expenditure by the quantity. For Q ≤ 15, the price is constant at $70. For Q > 15, the total expenditure is $1050 (15 units at $70 and 15 units at $40), so the average outlay is $40 + \frac{450}{Q}$.

Let the Inverse Demand Curve for a Monopolist's Product Be EQ=$70\frac { E } { Q } = \$ 70QE​=$70

Let the Inverse Demand Curve for a Monopolist's Product Be $\frac { E } { Q } = \$ 70$