1- If United Airlines gives a $100 fare discount to persons with student IDs, th

Question

1- If United Airlines gives a $100 fare discount to persons with student IDs, they are practicing?

                    -Third Degree Price Discrimination

                    -Second Degree Price Discrimination

                     -First Degree Price Discrimination

                     -All of the above

                     - None of the Above

2- If the perfectly competitive market demand for gym shoes is given by QD = 100 - P and the market supply is given by QS = 10 + 2P, then the equilibrium price and quantity will be?

3- Crusty Cakes sells donuts in Eastown and Westown. Its total costs are given by TC = 10(QE + QW). The demand in each neighborhood is given by QE = 100 - 2PE and QW = 100 - PW. If Crusty price discriminates between the two neighborhoods, how much will it charge in Eastown?

4- Crusty Cakes sells donuts in Eastown and Westown. Its total costs are given by TC = 10(QE + QW). The demand in each neighborhood is given by QE = 100 - 2PE and QW = 100 - PW. If Crusty price discriminates between the two neighborhoods, how many units will it sell in Westown?

Explanation / Answer

1)Third degree price discrimination

As student discount come under third degree price descrimination

2)In perfectly competetive market

Qd=Qs

=>100 - P =10+2P

=> P=$30

so price =$30

and Quantity =100-30 =70 units

3) price it charge in Eastown,

it maximises profit

so profit in east town = ((100-QE)/2*QE) -10(QE + QW) (As 100-QE)/2 =PE)

by partaill differentiating with respect to QE , we get

100/2 - QE -10 =0

=> QE =40

So price =(100-40)/2 = $30

so it charges $30 in East town

4)profit in west town =(100-QW)*QW -10(QE + QW)

by partialdifferentiating with repect to QW, we get

100-2QW -10 =0

=> QW =45 units

so he will sell 45 units in West town

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