Suppose there is a cable company that has the ability to provide internet service
over its cable lines. Assume that the marginal cost of the service is zero.
A key feature is that the more users on the system the slower it is, and so the less valuable the service. Suppose that there is a unit mass of consumers with taste parameter θ uniformly distributed where 0 < θ < 1. If a fraction μ of the population uses cable modems and the price is p then a user of type θ has utility (1 − μ)(1 − θ) − p, that is I like the service best when I am the only user and μ = 0. A consumer who does not obtain the service receives utility of 0.
c) What is the monopoly level of price and quality in this market?
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