Sub: Economics Topic: Micro Economics

Question:

Calculate the charges by assuming same monthly rental fee and unit price to all
its customers.

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An upstart phone company has only two potential large customers, Firm A and Firm B. Firm A’s
monthly demand for phone calls is Q1 = 2,800 − 200p (with p measured in cents) and Firm 2’s is
Q2 =5,000 − 100p. The marginal cost of providing a phone call is 6 cents. Assuming the phone
company has to charge the same monthly rental fee and unit price to all its customers, at what
level should it set these charges?

Solution:

This is a case of two part tariff.

Price of call is set equal to its MC=6cents.
Here the monthly rental charged will be the minimum of the consumer surplus (CS) of both
types of consumers.
When P=6 then Q1=1600 and Q2=4400

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 Sub: Economics Topic: Micro Economics

Type1 Type2

CS1= x (14-6) x 1600 = 6400 cents

CS2= x (50-6) x 4400 = 96800 cents

Therefore monthly rental= 6400 cents= $64
Unit Price = 6 cents

** End of the Solution **

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*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.