I'm new here but im trying to help where I can. Unfortunately got question that I'm finding very hard and dont know where to get help. This question has two parts to it. Very grateful for your help.
A monopoly firm sells romantic-comedy movies over the internet. After operating for a number of mont hs, the CEO of the firm realises that the firm faces two groups of potential customers for its movies: honest and dishonest people. The CEO is confused about how to deal with this and undertakes an analysis of the situation. The demand function for both groups of consumerís is the same: p = 120 Ė Q. The firm has a constant marginal and average cost of 20.
a. What will be the firmís profit maximising price, quantity and profit if it is not possible for dishonest customers to steal movies? What are the welfare consequences of this situation?
b. Next, assume that dishonest customers can pirate movies. What will be the firmís profit maximising price, quantity and profit if it is possible for dishonest customers to steal movies?