A music streaming website is determining whether to charge their customers per song to download...
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A music streaming website is determining whether to charge their customers per song to download a single MP3 file, or set a monthly subscription fee & let their users listen as much as they want. They have discovered during a free trial of the service that the typical user listens to 20 unique songs per month if they can download them for free. Market research tells them that if a single song download is priced at $2, no-one will buy it. Assume a zero marginal cost per song -- they pay record companies a flat fee for catalog access. a. Derive the inverse demand curve for digital music files. (2 points) Draw it. (2 points) b. Calculate the optimal price & quantity if the songs are sold as individual MP3 downloads. (2 points) c. Calculate the optimal price & quantity if the website sets up a subscription model, where users pay a monthly fee and listen as much as they want. (4 points)
A music streaming website is determining whether to charge their customers per song to download a single MP3 file, or set a monthly subscription fee & let their users listen as much as they want. They have discovered during a free trial of the service that the typical user listens to 20 unique songs per month if they can download them for free. Market research tells them that if a single song download is priced at $2, no-one will buy it. Assume a zero marginal cost per song -- they pay record companies a flat fee for catalog access.
a. Derive the inverse demand curve for digital music files. (2 points) Draw it. (2 points)
b. Calculate the optimal price & quantity if the songs are sold as individual MP3 downloads. (2 points)
c. Calculate the optimal price & quantity if the website sets up a subscription model, where users pay a monthly fee and listen as much as they want. (4 points)
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