Merriwell Corporation has a virtual monopoly in the ultra high speed computer market. Merriwell has recently introduced a new computer that will be used by satellite installations around the world. The installations have identical demands for the computers. Merriwell's managers have decided to lease rather than sell the computer, but they have been unable to decide whether to use a single hourly rental charge or a two-part tariff. Under the two-part tariff, users would be levied an access charge plus an hourly rental rate. Merriwell's marketing staff estimates a demand curve for each potential user given by P = 45-0.025Q where P = price per hour of computer time, and Q = the number of hours of computer time leased per month. Merriwell offers their users extensive maintenance assistance and technical support. The firm's engineers estimate that marginal cost is $30 per computer hour. Assume fixed costs are zero. If Merriwell charges a single rental rate, the optimal rate is ✓ $/hour and the optimal quantity is Merriwell's profit in this case is $ If Merriwell uses a two-part tariff, the access charge is $ In this case, Merriwell's profit is $ ✓and the hourly rental rate would be ✓ $/hour.

Merriwell Corporation has a virtual monopoly in the ultra high speed computer market. Merriwell has recently introduced a new computer that will be used by satellite installations around the world. The installations have identical demands for the computers. Merriwell's managers have decided to lease rather than sell the computer, but they have been unable to decide whether to use a single hourly rental charge or a two-part tariff. Under the two-part tariff, users would be levied an access charge plus an hourly rental rate. Merriwell's marketing staff estimates a demand curve for each potential user given by P = 45-0.025Q where P = price per hour of computer time, and Q = the number of hours of computer time leased per month. Merriwell offers their users extensive maintenance assistance and technical support. The firm's engineers estimate that marginal cost is $30 per computer hour. Assume fixed costs are zero. If Merriwell charges a single rental rate, the optimal rate is ✓ $/hour and the optimal quantity is Merriwell's profit in this case is $ If Merriwell uses a two-part tariff, the access charge is $ In this case, Merriwell's profit is $ ✓and the hourly rental rate would be ✓ $/hour.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 4E

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Merriwell Corporation has a virtual monopoly in the ultra high speed computer market. Merriwell has recently introduced a new computer that will be used by satellite installations around the world. The installations have identical demands for the computers. Merriwell's managers have decided to lease rather than sell the computer, but they have been unable to decide whether to use a single hourly rental charge or a two-part tariff. Under the two-part tariff, users would be levied an access charge plus an hourly rental rate. Merriwell's marketing staff estimates a demand curve for each potential user given by P = 45-0.025Q where P = price per hour of computer time, and Q = the number of hours of computer time leased per month. Merriwell offers their users extensive maintenance assistance and technical support. The firm's engineers estimate that marginal cost is $30 per computer hour. Assume fixed costs are zero. If Merriwell charges a single rental rate, the optimal rate is v $/hour and…
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