Freezeme is the unique supplier of refrigerators in a market with two types of consumers

1. [30 points] Freezeme is the unique supplier of refrigerators in a market with two types
of consumers. Each consumer is interested in buying at most one unit. Refrigerators
might come in di¤erent qualities. From any given quality level S, a consumer of type
1 derives a utility of
U1 = S ?? p;
and a consumer of type 2 gets utility
U2 = S ?? p;
where p is the price, and > 1 is a constant. If a consumer does not buy, his/her
utility is 0. Freezeme found out that there are 100 consumers of type 1 and 70 of type
2.
Freezeme has a marginal cost of production of 10 (regardless of quality) and the
(quantity-independent) cost of developing a product of quality S is S2
2 .
(a) Suppose Freezeme develop two refrigerators, one of quality S1, the other one of
quality S2, with S2 > S1. Freezeme.s product manager I.S. Cold claims that
their products can be considered as being vertically di¤erentiated. Is she right?
Explain your answer. [4 points]
(b) Suppose that Freezeme could distinguish between consumers of type 1 and con-
sumers of type 2. Freezeme wants to develop two di¤erent fridges to serve the two
di¤erent types of consumers. What would Freezeme.s optimal price and quality
for each group of consumers be? [For each given quality, the .rm uses uniform
1
pricing. That is, the .rm charges pi for product with quality Si, i = 1; 2.] Assume
that the .rm can prevent arbitrage. [8 points]
(c) Under which condition is the quality produced for type 2 consumers greater than
the quality for type 1 consumers? Explain why the .rm would ever want to o¤er
a product of lower quality to the higher valuation type consumers. [4 points]
Assume for the remainder of this problem that Freezeme is unable to distinguish
between consumers of type 1 and consumers of type 2. Also assume that the
condition you identi.ed in part (c) holds.
One of the most popular questions that students often ask is “Where can I get someone to help me handle my assignment Business Case Studies and Report Writing Assignments Online ?” or “Which is the best and cost friendly website for homework help where tutors give discounts throughout the year?” The answer is quite simple; at the den, we do this and so much more. For urgent essays, we also have a competent team that works smart to hack the assignment successfully.

Don't hesitate - Save time and Excel

Assignmentsden brings you the best in custom paper writing! To get started, simply place an order and provide the details!

Post Homework
Top