Question

Assume a firm faces two customers in the market. Customer 1 has an inverse demand of

p= 110-q₁,
and Customer 2 has an inverse demand of
p= 140-q₂
Marginal cost per unit is constant and equal to $20. Determine the profit the firm could make if it could charge each customer a different access fee.
When charging different access fees to both customers, profit equals $ _______ . (Enter a numeric response using a real number rounded to two decimal places.)
Assume the profit-maximizing price is $35.00 and the access fee charged to these two customers is $2,812.50. Determine the profit the firm would make if it charged this same access fee to both customers. The profit the firm could earn if it charged the same access fees is $ ________ .

Answer 1

The profit the firm could make if it charges different access fees to both customers is $2,812.50, while the profit it would make if it charges the same access fees to both customers is $2,625.

Step-by-step explanation:

The profit the firm could make if it could charge each customer a different access fee is $2,812.50. This is calculated by finding the profit-maximizing price, which is $35.00, and multiplying it by the quantity sold. In this case, the quantity sold is 80 ($110 - $35 = 75 for customer 1, and $140 - $35 = 105 for customer 2). Therefore, the total revenue for customer 1 is $2,625 ($35.00 * 75) and for customer 2 is $3,675 ($35.00 * 105). The total revenue for both customers is $6,300 ($2,625 + $3,675). The profit is calculated by subtracting the total cost from the total revenue. The total cost is the sum of the access fees charged to each customer, which is $2,812.50 ($2,625 + $3,675 - $2,812.50 = $6,300 - $2,812.50 = $3,487.50).

The profit the firm would make if it charged the same access fees to both customers is $2,625. This is calculated by finding the profit-maximizing price, which is $35.00, and multiplying it by the quantity sold. In this case, the quantity sold is 75 for customer 1 and 105 for customer 2. Therefore, the total revenue for both customers is $5,250 ($35.00 * 75 + $35.00 * 105). The profit is calculated by subtracting the total cost from the total revenue. The total cost is the sum of the access fees charged to each customer, which is $2,625 ($5,250 - $2,625 = $2,625).