Should a monopoly charge low introductory price in a two-period model?
A)Yes,if the extra profit in the second period is greater than the foregone in the first period.
B)Yes,if the demand in the second period is greater than the demand in the first period.
C)No.The first period profit is counted more.
D)No.Profit maximization decisions should be made separately.

Question

Quizplus · Accepted Answer

In a two-period model, a monopoly should charge a low introductory price if the extra profit in the second period is greater than the foregone profit in the first period. This is because the monopoly can attract more customers in the first period with a low price, and then charge a higher price in the second period due to increased demand. However, it is important to ensure that the foregone profit in the first period is not too high, as this could outweigh the extra profit in the second period. Therefore, the decision to charge a low introductory price should be based on a careful analysis of the demand and profit dynamics in both periods.

Should a Monopoly Charge Low Introductory Price in a Two-Period