Consider the figure below and answer the following questions:

a) If this firm charges a single price of $15, what is the total consumer surplus?

b) If the firm charges a single price of $25, what is the consumer surplus?

c) Assume now that the firm can exactly identify the customers behind various parts of the price– response. All customers with a reservation price below $25 are students, and all customers with a reservation price higher than this are in the general public. Assume further that the variable unit costs are $5. Calculate the total contribution if the firm (1) charges a single price of $25, and (2) charges a price of $15 for students and $25 for the general public. What is (3) the impact on the contribution by going from the single to the two- price approach?

d) How will the relative impact on the contribution (% change) be affected by whether we go from a single high ($25) or low ($15) price to a two- price approach?

Transcribed Image Text:

Demanded quantity 2000 1600 C 1200 B D 800 A E 0 5 15 25 FL Price per 45 unit (S)