1 Answer both parts (a) and (b) of this question. (a) [25 marks] Explain what are the two types of price discrimination in the following picture and what are the two main conditions required to implement price discrimination. Do not use other examples that are unrelated to this picture. (b) [25 marks] In the context of second degree price discrimination, suppose there are two types of consumer, the rich (R) and the poor (P), and two types of product, the high quality (H) and the low quality (L). The willingness to pay of each type of consumer for each type of product are given in Table 1, e.g. PHR denotes the willingness to pay of a rich (R) consumer for a high-quality product (H). The firm wants to set the prices for the high-quality, PH, and low-quality products, PL, such that the rich consumers will only buy high-quality products and the poor consumers will only buy low-quality products. Write down the steps of the price setting in this separating strategy. 1 Answer both parts (a) and (b) of this question. (a) [25 marks] Explain what are the two types of price discrimination in the following picture and what are the two main conditions required to implement price discrimination. Do not use other examples that are unrelated to this picture. (b) [25 marks] In the context of second degree price discrimination, suppose there are two types of consumer, the rich (R) and the poor (P), and two types of product, the high quality (H) and the low quality (L). The willingness to pay of each type of consumer for each type of product are given in Table 1, e.g. PHR denotes the willingness to pay of a rich (R) consumer for a high-quality product (H). The firm wants to set the prices for the high-quality, PH, and low-quality products, PL, such that the rich consumers will only buy high-quality products and the poor consumers will only buy low-quality products. Write down the steps of the price setting in this separating strategy