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Suppose Verizon has only three cell phone customers. The demand curve for each customer's monthly demand (in hours) is shown here:
Customer
Demand curve
1
Q=60-20p
2
Q=70-30p
3
Q= 50-8p
Here p = price in dollars charged for each hour of cell phone usage. It costs Verizon 25 cents to provide each hour of cell phone usage.
a. If Verizon charges the same price for each hour of cell phone usage, what price should they charge?
b. Find the profit maximizing a two-part tariff for Verizon. How much does the best two-part tariff increase the profit over the profit maximizing the single price?
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