3. Based on Sean\'s work, the marketing group has discovered that Center City ca

Question

3. Based on Sean's work, the marketing group has discovered that Center City can really be split into two markets: Established Families, with demand P150-0.2-Q and Young Professionals, with demand P = 90-0.4. a. Comcast has discovered a way to price discriminate between these two groups: offer an "Internet Plus" package of just internet access, HBO, and basic cable, and make it only available online (Established Families need a wider assortment of channels and wouldn't be interested in this product, whereas Young Professionals have exactly the same demand for this product as for Comcast's regular offering). Due to contract issues, the marginal cost of the "Internet Plus" package is still $30. Solve for the prices that Comcast should offer to each of the two groups. Price for full package Price for "Internet Plus" b. How much is it worth to Comcast to be able to do this price discrimination each month? Sean should probably get a bonus)

Explanation / Answer

a) Here Families need a wider assortment means a full package and young professional need only internet plus.

So price or Full package will be MR = MC

Here MR will be find out by the demand curve of families

P = 150 - 0.2Qf

TR = P*Qf =150Qf - 0.2Q2f

MR = d(TR)/dQf = 150 - 0.4Qf

MR = MC

150-0.4Qf = 30

Qf = 120/0.4 = 300

now put this in the demand function of families

P = 150 - 0.2(300) = 90

Price for full package= $90

Similarly we will find the price for internet plus, here we take demand function of young professionals.

TR = P*Qy = 90Qy- 0.4Q2y

MR = 90 - 0.8Qy

MR = MC

90 - 0.8Qy = 30

Qy = 75

put this in demand function of young professionals

P = 90 - 0.4(75)

P = $60

price for interne plus = 60.

b) For this part, we need to find the profit of comcast after price discrimination and before price discrimination.

** but here you do not provide the demand function ie, aggregate monthly demand where the market did not discover the different demand function (In short one demand function that the question must provide you in previous part)**

So i am just finding the profit after discrimination, you should compare this profit rom the profi before discrimination and if the profit here is greater than the difference will be the worth to Comcast to be able to do this price discrimination and Sean should get a bonus.

Here profit:

Profit = Qf*Pf + Qy*Py - MC*(Qf + Qy)

= 300*90 + 75*60 - 30*(300 + 75)

= $ 20,250 --- profit after discrimination.

** if you are unable to find the answer, provide me the demand function before price discrimination in the comment box, i will provide you ans there only**

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

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