6. Price-discriminating monopolist Darnell owns a plot of land in the desert tha

Question

6. Price-discriminating monopolist Darnell owns a plot of land in the desert that isn't worth much. One day, a giant meteor falls on his property. The event attracts scientists and tourists, and Darnell 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 demand (D) curves and marginal revenue (MR) curves for the two markets. Darnell's marginal cost of providing admission tickets is zero Market A Market B 10 10 MR MRB D 0 0 1 2 3 4 5 6 7 89 10 0 1 2 3 45 6 789 10 QUANTITY (Admission tickets per day) QUANTITY (Admission tickets per day) Suppose that at first, Darnell charges the same price of $4 per admission in both markets so that the total number of admissions demanded is Suppose now that Darnell decides to charge a different price in each market. To maximize revenue, Darnell should charge$ per admission in Market A and $ per admission in Market B. At these prices, he will sell a total quantity of admission tickets

Explanation / Answer

Suppose that at first, Darnell charges the same price of $4 per admission in both markets , then in market A , number of admissions demanded is 6. And in market B ,number of admission demanded is 2. So, the total number of admissions demanded is $ (6+2)= 8 .

Suppose now that the Dranell decides to charge a different price in each market. To maximise revenue, Darnell should charge the price where MR=0 , that is $5 per admission in market A and $3 per admission in market B . So, at these prices in market A ,he will sell 5 admission tickets and in market B ,he will sell 3 admission tickets . Therefore, he will sell a total of (5+3)= 8 admission tickets.

Darnell charges a lower price in the market with a relatively high price elasticity of demand.

Price policy Total revenue Non discriminatory $(4)(8)=$32 Discriminatory $(5)(5)+($3)(3)=$(25+9)= $34

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