8. A model of price discrimination Aa Aa Stelios, a retiree, owns and lives in t

Question

8. A model of price discrimination Aa Aa Stelios, 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). Stelios 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, Stelios 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 MarketA Market B PRICE IN MARKET A [Dollars per ticket) PRICE IN MARKET B (Dollars per ticket) 10 10 MR MR 0 2 4 6 8 10 12 14 16 18 20 QUANTITY IN MARKET A lTickets per hourl 0 2 4 6 8 10 12 14 16 18 20 QUANTITY IN MARKET B (Tickets per hourl Suppose Stelios has to charge the same ticket price in each of the two markets. If he sets a price of $4 per ticket, the total quantity demanded will be tickets per hour Now, suppose Stelios can price discriminate by charging a different price in each market. Because Stelios has no costs, he chooses prices for scientists and tourists that maximize his total revenue. In order to maximize revenue Stelios should charge sell a total quantity of per ticket in Market A and tickets per hour. per ticket in Market B. At these prices, he will

Explanation / Answer

Blank 1) 16

Explanation: In market A at $4 the quantity demanded is 12 and in market B the at $4 the quantity demand is 4. therefore total quantity demanded is 16 tickets per hour

Blank 2) $5 Blank 3) $3 Blank 4) 16

Explanation: Inorder to maximize the total revenue stelios should charge $5 in market A and $3 in market B so that the total revenue comes at $68

Blank 5) $64   Blank 6) $68

Explanation: stelios will earn $64 by charging $4 in each of the market and will earn maximum of $68 if he sells at the above given different prices

Blank 7) High

Explanation : he will charge lower prices where there is price is higly elastic.

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