Question

The local zoo has hired you to assist them in setting admission prices. The zoo's managers...

The local zoo has hired you to assist them in setting admission prices. The zoo's managers recognize that there are two distinct demand curves for zoo admission. One demand curve applies to those ages 12 to 64, while the other is for children and senior citizens. The two demand curves are:

PA = 9.6 - 0.08QA
PCS = 4 - 0.05QCS

where PA = adult price, PCS = children's/senior citizens' price, QA = daily quantity of adults, and QCS = daily quantity of children and senior citizens. Crowding is not a problem at the zoo, so that the managers consider marginal cost to be zero.

a) If the zoo decides to price discriminate, what are the profit maximizing price  and quantity  for adults? What is the total revenue  in this sub-market?

b) What are the profit maximizing price  and quantity  for children/seniors? What is the total revenue  in this sub-market?

c) What is the elasticity of demand for adults  at the price and quantity calculated? What is the elasticity of demand for children/seniors  at the price and quantity calculated? (Think about why this may be the case.)

Homework Answers

Answer #1

Price discrimination means charging different set of customer different prices according to their utility and willingness to pay in order to maximise revenues and profits.

(a) We find total revenue equal to 288 with profit maximising quantity for adults to be 60 and price be 4.8.

(b) We find total revenue equal to 80 with profit maximising quantity for children and senior citizens to be 40 and price be 2.

(c)We find price elasticities for both adults and senior citizens and they come out to be unit elastic i.e., equal to 1. The reason for this is that the firm is doing price discrimination making everyone pay according to their utility which leads all the people to pay and elasticity of demand being 1.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The local zoo has hired you to assist them in setting admission prices. The zoo's managers...
The local zoo has hired you to assist them in setting admission prices. The zoo's managers recognize that there are two distinct demand curves for zoo admission. One demand curve applies to those ages 12 to 64, while the other is for children and senior citizens. The two demand curves are: PA = 9.6 - 0.08QA PCS = 4 - 0.05QCS where PA = adult price, PCS = children's/senior citizens' price, QA = daily quantity of adults, and QCS =...
Suppose the local zoo hires you to assist them in setting admission prices. The zoo’s managers...
Suppose the local zoo hires you to assist them in setting admission prices. The zoo’s managers recognize that there are two distinct groups of consumers for zoo admission: adults (A) and children/senior citizens (CS). The demand and marginal revenue functions for the two groups are as follows:                                PA = 9.6 – 0.08QA        MRA = 9.6 – 0.16QA             PCS = 4 – 0.05QCS        MRCS = 4 – 0.10QCS Suppose the zoo is large enough so that...
A monopolist practices third degree price discrimination by separating its customers into two groups: consumers under...
A monopolist practices third degree price discrimination by separating its customers into two groups: consumers under 65 and senior citizens. Themonopolist’s marginal cost is MC = 0.05q, where q is the total output in both markets. The marginal cost does not depend on the market in which the goods are sold.The demand curves are !    Adults: PA = 25 – 1/6 × QA = 25 – 0.1667 × QA !    Seniors:        PS = 15 – c × QS = 15 – 0.125 ×...
You are the manager of a theater. At present the theater charges the same admission price...
You are the manager of a theater. At present the theater charges the same admission price of $8 to all customers, regardless of age. You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults. You tell your supervisor that your proposal is likely to increase revenue. "What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? 1) Explain the concepts of...
A hotel serves both business and vacation travelers and wishes to price-discriminate. The hotel managers can...
A hotel serves both business and vacation travelers and wishes to price-discriminate. The hotel managers can accurately identify and separate submarkets. The hotel faces the following cost : MC = AC = 20 Demand by business travelers:        Qb = 400 -5Pb Demand by vacationer:                     Qv = 400 -10 Pv 3.1. Derive MR for this firm 3.2. What is the profit-maximizing number of business travelers to serve? Vacationers? 3.3. What price should be charged to each type of travelers?...
2. You have been hired to do some consulting for Fishy Joe’s, a profit-maximizing monopolistic competitor...
2. You have been hired to do some consulting for Fishy Joe’s, a profit-maximizing monopolistic competitor selling “popplers”. You have estimated the firm’s demand, marginal revenue, and marginal cost curves to be, respectively, P = 100 − 2Q, MR = 100 − 4Q, and MC = 20 + Q, where quantity Q is measured in servings and prices are measured in dollars per serving. Currently, the firm is producing where • Price = $50/serving • Average Total Cost = $38/serving...
Assume that consumers view tax preparation services as undifferentiated among producers, and that there are hundreds...
Assume that consumers view tax preparation services as undifferentiated among producers, and that there are hundreds of companies offering tax preparation in a given market. The current market equilibrium price is $120. Jojo’s Tax Service has a daily, short-run total cost given by TC = 100 + 4Q2. Answer the following questions: How many tax returns should Jojo prepare each day if her goal is to maximize profits? How much will she earn in profit each day? A perfectly competitive...
Assume that consumers view tax preparation services as undifferentiated among producers, and that there are hundreds...
Assume that consumers view tax preparation services as undifferentiated among producers, and that there are hundreds of companies offering tax preparation in a given market. The current market equilibrium price is $120. Jojo’s Tax Service has a daily, short-run total cost given by TC = 100 + 4Q2. Answer the following questions: How many tax returns should Jojo prepare each day if her goal is to maximize profits? How much will she earn in profit each day? A perfectly competitive...
21. The “prisoner’s dilemma” facing a cartel is that A) what is good for the cartel...
21. The “prisoner’s dilemma” facing a cartel is that A) what is good for the cartel is bad for society as a whole B) the production level that is best for a self-interested firm may not be what is best for the cartel as a whole C) what is good for the cartel as a whole is to maximize production; the dilemma is that individual cartel members may not want to share technology secrets with other firms D) the profit-maximizing...
1. What is an ISP (Integrated Service Provider) for supply chains? (1 point) A. A consultant...
1. What is an ISP (Integrated Service Provider) for supply chains? (1 point) A. A consultant agency which integrates the supply chain for companies B. A 2 PL or a 3PL, but not a 4PL C. A company supplying transportation and warehousing services D. A logistics service company specialized in suppling VAS (value added services) 2. What characterizes a 4 PL? (1 point) A. They are non-asset based and provides integrated services primarily supplied by asset based providers, for example...