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1. Monopoly and Pricing Strategy (25 Points) Suppose that the only movie theater in town has two types of customers, senior citizens and adults. The
1. Monopoly and Pricing Strategy (25 Points) Suppose that the only movie theater in town has two types of customers, senior citizens and adults. The demand curve for senior citizens and adults are given by: Q1 = 100 - P1 Demand curve for senior citizens Q2 = 120 - 0.5P2 Demand curve for adults Where Q1 denote the number of movie tickets purchased by senior citizens and Q2 denote the number of movie ticket purchased by adults. The cost function for the movie theater is given by: TC = 2000 + 20(Q1 + Q2) Total Cost of Production Suppose that the theater can charge two different prices and is going to apply the third-degree price discrimination as their pricing strategy: a. List and explain all the conditions necessary for third-degree price discrimination! [5 points] b. (i) What prices will the movie theater charge and how many tickets will be sold to each type of consumer? [10 points] (ii) Explain graphically your answer in part b(i)! [5 points] c. Now suppose that MC is rising, show graphically the case where third-degree price discrimination may not be profitable (Hint: Even if the third-degree price discrimination is feasible, the theater will not sell tickets to both groups of consumers) [5 points]
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