Juanita owns a plot of land in the desert that isn\'t worth much. One day, a gia

Question

Juanita owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on her property, making a large crater. The event attracts scientists and tourists, and Juanita decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show daily demand (D) curves and marginal revenue (MR) curves for the two markets. Juanita's marginal cost of providing admission tickets is zero. Market A Market B 10 10 MR 0 2 46 8 10 12 14 16 18 20 QUANTITY (Admission tickets) 0 2 46 8 10 12 14 16 18 20 QUANTITY (Admission tickets) Suppose that at first, Juanita charges the same price of $4 per admission in both markets so that the total number of admissions demanded is Suppose now that Juanita decides to charge a different price in each market. To maximize revenue (and therefore, profits), Juanita should charge per admission in Market A and$ per admission in Market B. At these prices, she will sell a total quantity of admission tickets per day Complete the following table by caiculating Juanita's total revenue from selling in both markets under the nondiscriminatory as well as the discriminatory price policy. Total Revenue (Dollars) Pricing Policy Nondiscriminatory Discriminatory Juanita charges a lower price in the market with a relatively price elasticity of demand

Explanation / Answer

Total no. of tickets demanded at $4 per ticket = Demand Market A + Demand Market B = 12+4 = 16 tickets To maximise profits juanita should charge $5 in market A and $3 in market B. At this prices she will sell 16 tickets. Revenue in Market A is highest when price charged is $5. tickets demanded are 10. Revenue = 10*5 = $50 at price of $6 the revenue is 48(6*8). Similarly in market B at $3 the demand is 6 tickets and revenue =3*6 =$18. Juniata total revenue:- Non discriminatory prices = tickets demanded * price = 16 * 4 = $64. Non discriminatory prices = tickets demanded * price = $5*10 + $3*6 = 50+18 =$68 Junita charges lower price in the market with a relatively high price elasticity of demand. .

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