Microeconomics 2nd Edition by Douglas Bernheim

Exercise 14

Suppose the monopolist in exercise 18.14 offers a menu of two-part tariff plans, with one plan intended for each type of consumer. Suppose too, as in our discussion in the text, that for any per-minute price P L in the low-demand plan, the fixed fee in the low-demand plan leaves a low-demand consumer with zero surplus; that the number of minutes in the low-demand plan is capped at the number of minutes desired by a low-demand consumer at that plan's per- minute price; and that the high-demand plan has a per-minute price of 10 cents and a fixed fee that leaves the high-demand consumer (approximately) indifferent between the low- and high-demand plans. Suppose that there are 100 high-demand consumers and 300 low-demand consumers. (The marginal cost is 10 cents per minute and the demand functions are the same as in exercise 18.14.) Will the monopolist's profit be higher when the per-minute price in the low-demand plan is 20 cents or 15 cents