1. Senior Discounts for Movies. Your movie theater charges a single price of $6. The marginal cost...

Question:

1. Senior Discounts for Movies. Your movie theater charges a single price of $6. The marginal cost of each patron is $1. A recent marketing survey revealed the following information about senior citizens and nonseniors.

a. The marginal revenue for senior citizens is $ ________, while the marginal revenue for nonseniors is $ ________.
b. If your objective is to maximize profit, the marginal principle tells you to ________the price for seniors________ and the price for nonseniors.
2. Radiohead s Voluntary Pricing. Suppose that if Radiohead were to release its new album as a $15 CD, it would sell 4 million copies and earn the standard royalty of $2.25 per CD. If the band releases the album for downloading from its Web site at a voluntary price, 4.5 million people will download. Under what circumstances will the band be indifferent between a conventional CD release and downloading with a voluntary price?
3. Book Pricing and Elasticity of Demand. A publisher initially prices both hardback books and paperback books at $20 per book. The hardback version comes out first, followed two months later by the paperback version. The publisher initially sells the same number of hardbacks and paperbacks (100 each). Each book costs $2 to produce.
a. Complete the following table.

b. The price elasticity of demand for hardback (eager) buyers is 0.50, and the price elasticity of demand for paperback (patient) buyers is 2.00. Suppose the publisher increases the price for hardbacks by 10 percent and decreases the price of paperbacks by 10 percent. Complete the following table.

c. Does price discrimination increase or decrease the publisher s profit?
4. Haircuts in Mulletville. The town of Mulletville has a single hairstylist. The marginal cost of a haircut is the same for men and women ($10). The quantity of haircuts is 100 for men and 100 for women. The profit-maximizing price for women is $35, compared to $15 for men.
a. What explains the price difference?
b. Illustrate with a complete graph.
5. Tax Cuts for Discounters? Consider the following statement from a member of a city council: Several of the merchants in our city offer discounts to our senior citizens. These discounts obviously decrease the merchant€™s profits, so we should decrease the merchant€™s taxes to offset their losses on senior-citizen discounts. Do you agree or disagree? Explain.
6. Airline Pricing. Consider an airline that initially has a single price of $300 for all consumers. At this price, it has 120 business travelers and 80 tourists. The airline s marginal cost is $100. The slope of the business demand curve is $2 per traveler, and the slope of the tourist demand curve is $1 per traveler. Does the single price policy maximize the airline s profit? If not, how should it change itsprices?