Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 14

A firm is considering building a two-way network that links 12 users. The cost of building the network is $10,000.
a. How many potential connection services does this network provide?
b. If each user is willing to pay $150 to connect to the network, will the firm profit by building the network?
c. If each user is willing to pay an average of $12 for each potential connection service provided by the network, will the firm profit by building the network?
d. What happens to the number of potential connection services if one additional user joins the network?