Go back to a manufacturing monopoly that produces items at a con­ stant unit cost k , and that must sell these units to retailers who sell the items at zero additional cost (beyond the cost the retailers incur to buy the items from the monopoly). Suppose there are two retailers, and they act according to Cournot conjectures. Demand is (what else) P = A - Q.

(a) Assume the monopoly charges retailers according to simple linear prices - at a price the monopoly sets. What is the optimal price for the monopoly to set?

(b) Suppose the monopoly can use a two-part tariff scheme, where it charges each retailer a fixed fee, plus a per unit charge for any units bought. What is the optimal pricing scheme for the monopoly?

(c) Now consider what will happen if the two duopolists compete with Bertrand conjectures.