The Mall Street Journal is considering ordering a new servic

The Mall Street Journal is considering ordering a new service which will send news articles to readers by email. Their market research indicates that there are two types of potential users, impecunious under- graduates studying microeconomics and high-level executives. Let x be the number of articles that a user requests per year. The executives have an inverse demand function PE (x) = 100 - x and the undergraduates have an inverse demand function PU (x) = 80 - x. (Prices are measured in cents.) The Journal has a zero marginal cost of sending articles via email.

A) Suppose that the Mall Street Journal decides to include only 60 articles in the student package. What is the most it could charge and still get student to buy this package?

B) If the Mall Street Journal orders a “student package” of 60 articles at this price, how much net consumer surplus would executives get from buying the student package?

C) What is the most that the Mall Street Journal could charge for 100 article package and expect executives to buy this package rather than the student package?

D) If the number of executives in the population equals the number of students, would the Mall Street Journal make higher profits by ordering astudent package of 80 articles or a student package of 60 articles?

Solution

A. $30 it can charge and still get student to buy this package

B. $12

C. $38

D. student package of 60 articles