1. Price-discriminating firm Eleanor owns a plot of land in the desert that isn\
ID: 1105960 • Letter: 1
Question
1. Price-discriminating firm Eleanor owns a plot of land in the desert that isn't worth much. One day, a giant meteor falls on her property. The event attracts scientists and tourists, and Eleanor decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show demand (D) curves and marginal revenue (MR) curves for the two markets. Eleanor's marginal cost of providing admission tickets is zero. 01234567910 QUANTITY (Admission tickts per day 01234567910 QUANTITY (Adnission sckets per day Suppose that at first, Eleanor charges the same price of $4 per admission in both markets so that the total number of admissions demanded is Suppose now that Eleanor decides to charge a different price in each market. To maximize revenue, Eleanor should chargeg per admission in Market A and per admission in Market B. At these prices, she will sell a total quantity of admission tickets per day. Complete te following table by calculating Eleanor's total revenue from selling in both markets under the nondiscriminatory as well as the discriminatory price policy. Eleanor charges a lower price in the market with a relatively price elasticity of demandExplanation / Answer
Total number of admissions demanded = 3+1= 4
To maximize MR = MC in each market:
In market A: MR =0 at Q = 5 and charge at demand curve P = 5
Market B: Q = 3 at MR = 0 and P = 3
At these prices total sold = 5+3 = 8
Total Revenue:
Non-distriminatory= 4*4 = 16
Discriminatory = 5*5+3*3 = 25+9 = 34
Eleanor charges a lower price in the market with a relatively high price elasticity of demand.
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