Question

Price Discrimination

Suppose the demand for ticket sales is given by the following function: P =315−2Q

Further suppose that marginal cost is 3Q and total cost is 3/2Q^2

a) Find the profit maximizing price and quantity. 1

b) What is the maximum profit?

Suppose now that the ticket seller can price discriminate by checking IDs. There are two

demands in the market:

Adult Demand: PA = 315 − 3Q

Student Demand: PK = 315 − 6Q

Again, suppose that marginal cost is 3Q and total cost is 3/2Q^2

2

c) What is the profit maximizing price (PA) that will be charged to the adults?

d) What is the profit maximizing price (PK) that will be charged to the kids?

e) What is the maximum profit achieved by profit discrimination (add the profits from selling to the adult and kid markets)?

Answer 1