6. Price-discriminating firm Eleanor owns a plot of land in the desert that isn\

Question

6. 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 Market A Market B 10 10 MR MR 0 1 2 3 4 5 6 7 8 9 10 QUANTITY (Admission tickets per day) 0 1 2 3 45 6 7 8 9 10 QUANTITY (Admission tickets 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 charge$ admission in Market B. At these prices, she will sell a total quantity of per day per admission in Market A and $ per admission tickets Complete the following table by calculating Eleanor's total revenue from selling in both markets under the nondiscriminatory as well as the discriminatory price policy. Price Policy Nondiscriminatory Discriminatory Total Revenue high low Eleanor charges a lower price in the market with a relatively price elasticity of demand

Explanation / Answer

Price = $ 4

Demand = 6 + 2 = 8 admission tickets

Revenue would be maximized where MR = 0 :

Eleanor should charge $ 5 per admission in market A (MR = 0 at Qa = 5 admission tickets)

Eleanor should charge $ 3 per admission in market B (MR = 0 at Qb = 3 admission tickets)

Total quantity of tickets sold = Qa + Qb = 8 admission tickets

Eleanor charges a lower price in the market with a relatively high price elasticity of demand.

Price Policy Total revenue ($) Non- discriminatory 32 Discriminatory 34

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.