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Consider the manufacturer of golf balls in Problem 12.8. The firm faces the demand curve P = 100 – Q, and operates with a marginal cost of 10 for all units produced. Among all the possible block tariffs (with two blocks), what block tariff structure will maximize profit? In other words, what choices of P1, Q1 for the first block and P2, Q2 for the second block will maximize profit?
Problem 12.8
Fore! is a seller of golf balls that wants to increase its revenues by offering a quantity discount. For simplicity, assume that the firm sells to only one customer and that the demand for Fore!’s golf balls is P = 100 – Q. Its marginal cost is MC = 10. Suppose that Fore! sells the first block of Q1 golf balls at a price of P1 per unit.
a) Find the profit-maximizing quantity and price per unit for the second block if Q1 = 20 and P1 = 80.
b) Find the profit-maximizing quantity and price per unit for the second block if Q1 = 30 and P1 = 70.
c) Find the profit-maximizing quantity and price per unit for the second block if Q1 = 40 and P1 = 60.
d) Of the three options in parts (a) through (c), which block tariff maximizes Fore!’s total profits?

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