Suppose that at first, Rima charges the same price of $8 per admission in both m

Question

Suppose that at first, Rima charges the same price of $8 per admission in both markets so that the total number of admissions demanded is tickets. Suppose now that Rima decides to charge a different price in each market. To maximize revenue, Rima should charge per admission in Market A and per admission in Market At these prices, she will sell a total quantity of admission tickets per day. Complete the following table by calculating Rima's total revenue from selling in both markets under the nondiscriminatory as well as the discriminatory price policy. Rima charges a lower price in the market with a relatively price elasticity of demand

Explanation / Answer

(a) When uniform price is $8, quantity demanded in market A = 18, quantity demanded in market B = 6

Total quantity demanded = 18 + 6 = 24

(b) Revenue is maximized when MR = 0.

In market A, when MR = 0, Price = $10 & quantity demanded = 15

In market B, when MR = 0, Price = $6 & quantity demanded = 9

Total quantity demanded = 15 + 9 = 24

(c) Total revenue (TR) = P x Q

(i) Non-discriminatory:

TR = $8 x 24 = $192

(ii) Discriminatory:

TR = TRA + TRB = $10 x 15 + $6 x 9 = $(150 + 54) = $204

(d) Rina charges lower price in market with relatively higher price elasticity of demand.

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