Thank you so much 2. Price-discriminating monopolist Aa Aa Kevin, a retiree, own
ID: 1124543 • Letter: T
Question
Thank you so much 2. Price-discriminating monopolist Aa Aa Kevin, a retiree, owns and lives in the desert on a piece of land that isn't worth much. One day, a giant meteor falls in the middle of his property. As it turns out, two groups of people are interested in visiting the meteor: scientists (Market A) and tourists (Market B). Kevin decides to sell tickets to visit the meteor in both Market A and Market B He stays home all day anyway, so collecting money from visitors isn't a problem for him. Therefore, you can assume he has zero costs. Also, Kevin has a very good memory and will allow only the person who bought each ticket to use it. Thus, you can assume that all tickets are nontransferable. The demand and marginal revenue curves for the two markets are shown on the following two graphs. Market A Market B PRICE IN MARKET A IDollars per ticket PRICE IN MARKET B IDollars per ticket) 10 10 MR MR 0 2 468 10 12 14 16 18 20 QUANTITY IN MARKET A (Tickets] 0 2 4 68 10 12 14 16 18 20 QUANTITY IN MARKET B ITicketsl Suppose Kevin has to charge the same ticket price in each of the two markets. If he sets a price of $4 per ticket, the total quantity demanded will be-16- tickets.Explanation / Answer
Your answers are correct, except only 1, shown as follows.
(a) When price = $4,
Quantity demanded, Market A = 12
Quantity demanded, Market A = 4
Total quantity demanded = 12 + 4 = 16 [Correct]
(b) Total revenue is maximized when Marginal revenue (MR) = 0. When MR = 0,
Quantity demanded, Market A = 10 and Price = $5 [Correct]
Quantity demanded, Market B = 6 and Price = $3 [Correct]
Total quantity = 10 + 6 = 16 [Your answer was incorrect]
(c)
(i) When he charges same price, Total revenue = $4 x 16 = $64 [From part (a)] [Correct]
(ii) When he charges different prices,
Total revenue, Market A = $5 x 10 = $50
Total revenue, Market B = $3 x 6 = $18
Total revenue = $50 + $18 = $68 [Correct]
(d) He charges a lower price in market with higher elasticity of demand (this is the condition for profitable price discrimination). [Correct]
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