question archive You live in a town with 400 adults and 300 children, and you are thinking about putting on a play to entertain your neighbors and make some money
You live in a town with 400 adults and 300 children, and you are thinking about putting on a play to entertain your neighbors and make some money
Subject:PsychologyPrice: Bought3
You live in a town with 400 adults and 300 children, and you are thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2,000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customer: Price Adults Children $10 0 0 $9 100 0 $8 200 0 $7 0 $6 400 0 $5 400 100 $4 400 200 $3 400 300 $2 400 300 $1 400 300 $0 400 300 300 (a) Suppose you are allowed to charge different prices to different people. To maximize profit, what price would you charge for an adult? What price would you charge for a child? How much profit do you make? (8 points) (b) The city council passes a law prohibiting you from charging different prices to different people. What price do you set for a ticket now? How much profit do you make? (6 points) (c) Who is worse off because of the law prohibiting price discrimination? Who is better off? Explain your answer. (6 points) (d) Many people oppose the price discrimination raised by a monopolist. According to your answers in parts (a) to (c), what is the pros and cons of price discrimination?
