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) if Q≤15 and if Q15 B) if Q≤15 and if Q15 C) if Q≤15 and if Q15 D) if Q≤15 and 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) if Q≤15 and if Q>15 B) if Q≤15 and if Q>15 C) if Q≤15 and if Q>15 D) if Q≤15 and if Q>15

Quizplus · Accepted Answer

To find the average outlay schedule, we need to first find the total amount consumers pay for each level of consumption. 
For the first 15 units, consumers pay a fixed fee of $70 and an additional per-unit fee of $3 ($100 - $70 = $30, divided by 15 units). 
For the next 15 units, consumers pay a fixed fee of $40 and an additional per-unit fee of $2 ($100 - $40 = $60, divided by 15 units). 
For any consumption level greater than 30, consumers pay a per-unit fee of $2. 
Putting all of this together, we get the following average outlay schedule: 
$73.33 if Q≤15, 
$66.67 if 15<Q≤30, 
$62.50 if Q>30. 
Therefore, the correct answer is B.

Let the Inverse Demand Curve for a Monopolist's Product Be