David, a retiree, owns and lives in the desert on a piece of land that isn\'t wo

Question

David, a retiree, owns and lives in the desert on a piece of land that isn't worth much. One day, a giant meteor falls in the middle of his property. As it turns out, two groups of people are interested in visiting the meteor: scientists (Market A) and tourists (Market B). David decides to sell tickets to visit the meteor in both Market A and Market B He stays home all day anyway, so collecting money from visitors isn't a problem for him. Therefore, you can assume he has zero costs. Also, David has a very good memory and will allow only the person who bought each ticket to use it. Thus, you can assume that all tickets are nontransferable The demand and marginal revenue curves for the two markets are shown on the following two graphs Market A Market B PRICE IN MARKET A (Dollars per ticket) PRICE IN MARKET B (Dollars per ticket] 40 40 32 32 24 24 16 16 MR MR 1 2 3 45 6 7 89 10 QUANTITY IN MARKET A (Tickets per hourl 1 2 3 45 6 7 8 9 10 QUANTITY IN MARKET B (Tickets per hour) Suppose David has to charge the same ticket price in each of the two markets. If he sets a price of $16 per ticket, the total quantity demanded will be tickets per hour Now, suppose David can price discriminate by charging a different price in each market. Because David has no costs, he chooses prices for scientists and tourists that maximize his total revenue. In order to maximize revenue, David should charge total quantity of per ticket in Market A and tickets per hour. per ticket in Market B. At these prices, he will sell a Refer to your answers to the previous two questions. Suppose David decides that he wants to limit admission to 8 people per hour, but he still wants to generate the most revenue possible. If David is forced to charge everyone the same price, he will earn revenues of in each market, he can earn revenues of up to per hour. If he can price discriminate by charging a different price per hour. David charges a lower price in the market with price elasticity of demand

Explanation / Answer

P = $16

Qa = 6 tickets , Qb = 2 tickets

Qtotal = 6 + 2 = 8 tickets per hour

After price discrimination:

David charges a price corresponding to the quantity where MR = MC = 0

Pa = $20 per ticket and Pb = $12 per ticket

Total quantity sold = 8 tickets per hour

Revenue earned:

Same price is charged: TR = 16 x 8 = $128 per hour

Different price is charged: TR = 12 x 3 + 20 x 5 = $136

David charges a lower price in the market with higher price elasticity of demand. (total revenue would increase)

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