Loose-leaf Version for Modern Principles of Microeconomics & LaunchPad (Six Month Access)
Loose-leaf Version for Modern Principles of Microeconomics & LaunchPad (Six Month Access)
3rd Edition
ISBN: 9781319036065
Author: Tyler Cowen, Alex Tabarrok
Publisher: Worth Publishers
Question
Book Icon
Chapter 14, Problem 10TPS

Subpart (a):

To determine

The profit from the price discrimination.

Subpart (a):

Expert Solution
Check Mark

Explanation of Solution

The market is a structure where there are buyers who buy and sellers who sell, and the exchange of goods and services takes place between them. The price is determined by the interaction of the demand and supply in the market.  The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.

The profit maximizing point of a firm is the point where the firms’ marginal cost is equal to the marginal revenue. Here, it is given that the marginal revenue of senior citizens is 50Q , and the marginal revenue from others is 1002Q . The profit maximizing output can be calculated by equating the marginal revenue with the marginal cost, which is given as 10 in both the cases.

Thus, the profit maximizing quantity by the seniors can be calculated by equating MR equal to Mc as follows:

Marginal costSeniors=Marginal revenueSeniors10=50QQ=5010Q=40

The profit maximizing price can be calculated by substituting the profit maximizing quantity in the equation for price as follows:

PriceSeniors=500.5Q=50(0.5×40)=5020=30

Thus, the profit maximizing price for seniors is $30, and the quantity is 40. Similarly, the items for the others can be calculated as follows:

Marginal costOthers=Marginal revenueOthers10=1002Q2Q=10010Q=902=45

The profit maximizing price can be calculated by substituting the profit maximizing quantity in the equation for price as follows:

PriceSeniors=100Q=10045=55

Thus, the profit maximizing price for others is $55, and the quantity is 45.

Economics Concept Introduction

Concept introduction:

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.

Subpart (b):

To determine

The profit from the price discrimination.

Subpart (b):

Expert Solution
Check Mark

Explanation of Solution

When the percentage of discount that have to be offered to the seniors have to be calculated, the price that the seniors are charged must be subtracted from the price charged for others and divided with the price charged for others as follows:

Percentage discount offered to seniors=(Price for othersPrice for seniors)Price for others×100=(5530)55×100=45

Thus, the seniors will be offered a discount of 45 percent.

Economics Concept Introduction

Concept introduction:

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.

Subpart (c):

To determine

The profit from the price discrimination.

Subpart (c):

Expert Solution
Check Mark

Explanation of Solution

The total cost of the firm can be calculated by multiplying the total quantity with the marginal cost, and the total revenue of the firm can be calculated by multiplying the quantities demanded by seniors and others with their respective prices and adding them together. By subtracting the total cost from the total revenue, the total profit of the firm can be calculated. This can be done as follows:

Total Profit =[{(QuantitySeniors×PriceSeniors)+(QuantityOthers×PriceOthers)}{Total output×Marginal cost}]=[{(40×30)+(45×55)}{85×10}]=[{1,200+2,475}{850}]=3,675850=2,825

Thus, the total profit of the firm is $2,825.

Economics Concept Introduction

Concept introduction:

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.

Subpart (d):

To determine

The profit from the price discrimination.

Subpart (d):

Expert Solution
Check Mark

Explanation of Solution

When there is no possibility of price discrimination in the market, the firm faces only one single marginal revenue and market demand. Since there is no change in the marginal cost of the firm, the profit maximizing quantity can be calculated by equating the marginal revenue and marginal cost as follows:

Marginal cos=Marginal revenue10=6723Q23Q=6710Q=572×3=85.5

The profit maximizing price can be calculated by substituting the profit maximizing quantity in the equation for price as follows:

Price=6713Q=6713×85.5=6728.5=38.5

Thus, the profit maximizing price for others is $38.5 and since the quantity cannot be a fraction, it is 86.

Economics Concept Introduction

Concept introduction:

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.

Subpart (e):

To determine

The profit from the price discrimination.

Subpart (e):

Expert Solution
Check Mark

Explanation of Solution

The profit of the market can be calculated by subtracting the total cost from the total revenue as follows:

Total profit=Total revenueTotal cost=(85.5×38.5)(85.5×10)=3,291.75855=2,436.75

Thus, the profit of the market is $2,436.75, which means that the total profit is less than the previous level profit when the market was able to price discriminate on the basis of age.

Economics Concept Introduction

Concept introduction:

Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education