Question

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Suppose that you are the marketing manager of Pulp Corp., the only producer of tangelos in the imaginary economy of Rattleville. As a monopolist, Pulp Corp.s objective is to maximize its profit, so it is up to you devise a way to increase profits through price discrimination. As a former economics student, you know that many firms successfully practice price discrimination by separating their market into two identifiable types of consumers-what economists call third-degree price discrimination. Examples of this include student discounts, senior citizen discounts, and ladies' night discounts. After doing some research, you conclude that the demand for tangelos varies greatly between consumers who clip coupons and those who do not. The following graphs show the overall daily demand and marginal revenue (MR) for a pound of tangelos for each group of consumers and the marginal cost (MC) for producing a pound of tangelos. Assume that fixed costs are equal to zero. Note: You will not be graded on any changes made to these graphs

Answer 1

Coupon clippers profit max. MR = MC Therefore Q = 1.75 Non - coupon clippers q = 30 is profit max quantity p = 2.50 is profit max price \r\n consumer Type P Q upon clippers 1.75 15 Non - upon clippers 2.50 30 Now profit pi = TR - TC F. C = 0 given Therefore MC = AC profit upon clipper pi = P. Q - T C pi = P. Q = AC. Q pi = (P - AC) Q pi = (1.75 - 1) times 15 = 11.25 profit for non - upon clippers pi = (P - AC) Q = (2.50 - 1) 30 = 1.50 times 30 = 45 Therefore Overall profit = 11.25 + 45 56.25 \r\n Recession upon clippers The profit max price & Quantity on p = 1.50, Q = 20 Non - upon clippers profit max quantity & price are Q = 15 p = 2.50 \r\n Now Profit upon clippers pi = (P - AC) = (1.50 - 1) 20 = 50 times 20 = 10 profit Non clippers, pi = (P - AC) Q = (2.50 - 1) 15 = 1.50 times 15 = 22.5