At the movies, adults pay a higher ticket price than children, and each group ge
ID: 1203148 • Letter: A
Question
At the movies, adults pay a higher ticket price than children, and each group gets a different-coloured ticket. However, when adults and children go to the snack bar, both groups pay the same amount for popcorn and other snacks. (a) Why does price discrimination stop at the ticket window, and not practiced in the case of popcorn? (b) What are the three main requirements for successful price discrimination? (c) If elasticity of demand for popcorn is very high, can the theatre charge higher mark-up? Explain your answer with an appropriate diagram. (d) Explain the difference between first-degree price discrimination and second-degree price discrimination, giving suitable examples.
Explanation / Answer
The price discrimination is due to the difference in the elasticity of demand for tickets between adults and children. However the elasticity of demand for snacks may be same for both the age group.
The main requirements of the price discrimination to be successful is
MR = AR(1-1/e) higher elasticity means that MR will get closer and closer to the AR or P
First degree price discrimination charges different price from different consumers on the basis of take it or leave it price. On the other hand second degree charges different price from different group of customers or markets. That is one market or group is charged same price and the other group different depending upon the elasticity of demand.
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