Question

A monopoly produces a good with a network externality at a constant marginal and average cost of c $3. In the first period, its inverse demand curve is p- 15-1Q. In the second period, its inverse demand curve is p 15-10 unless it sells at least Q-9 units n the first pe od lf it meets or exceeds this arge then the demand curve rotates out α t sels α imes as many un or any given price so that s inverse den and une s p-15- The monopoly knows that it can sell no output after the second period. The monopoly's objective is to maximize the sum of its profits over the two periods For what values of α would the monopoly earn a higher two-period profit by setting a lower price in the first period? If α is|greater than|1.15. (round your answer to two decima,places)

Answer 1

If α > 1.15, the monopoly would earn higher two-period profits by setting a lower price in the first period.

Step-by-step explanation:

The monopoly's objective is to maximize profits over the two periods. To determine the optimal pricing strategy, the monopoly needs to analyze the demand curves and the effect of network externalities. If the monopoly sets a lower price in the first period, it can increase demand and potentially earn higher profits.

Let's consider the case where α > 1.15. If the monopoly sells α times as many units in the first period, the demand curve will rotate outward, resulting in a higher price. In this scenario, the monopoly would earn higher two-period profits by setting a lower price in the first period.

However, it's important to note that the answer requires rounding the final result to two decimal places.