Why monopolist has excessive incentives to introduce product

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Reference no: EM13874777

1. Show that a monopolist with one product at the left end point would find it profit maximizing to serve the entire market when transportation costs are quadratic in the linear city if V ≥ 3k.

2. Suppose that consumers are uniformly distributed on the unit interval and that the only locations where a firm can locate are at the end points. Suppose further that transportation costs are quadratic and V ≥ 3k. As usual assume that ( p - c) = 1 and the total number of consumers has been normalized to one. Show that for 3k/4 > f > k/4 a monopolist would provide products at both end points but the efficient solution is for a single product. Explain why the monopolist has excessive incentives to introduce the second product.

Reference no: EM13874777

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