Question

As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie theaters. On weekends, the inverse demand function is P = 20 – 0.001Q; on weekdays, it is P = 15 – 0.002Q. You acquire legal rights from movie producers to show their films at a cost of $25,000 per movie, plus a $2.50 “royalty” for each moviegoer entering your theaters (the average moviegoer in your market watches a movie only once).

What type of pricing strategy should you consider in this case?

• Third degree price discrimination

• Second degree price discrimination

• First degree price discrimination

• Block pricing

What price should you charge on weekends?

Instruction: Enter your response rounded to two decimal places.

$

What price should you charge on weekdays?

Instruction: Enter your response rounded to two decimal places.

$

Answer 1

Answer 1. Third degree price discrimination

reason- Different price is charged for different group of people whi visits on weekdays amd weekend. So it is third degree price discrimination.

TC=25000+2.5Q

MC=2.5

Pweekends=29-0.001Q

MR=20-0.002Q

Pweekdays=15-0.002Q

MR=15-0.004Q

Answer 2. $11.25

reason-

MC=MR

2.5=20-0.002Q

Q= 8750

P=20-0.001( 8750)

P=$11.25

Price on weekends=$11.25

Answer 3. $8.75

reason- MC=MR

2.5=15-0.004Q

Q= 3125

P=15-0.002(3125)

P=$8.75

Price on weekdays=$8.75

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