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3. (30 points)The Alpine Inn is located in Vermont near the Quebec border. After a comprehensive market study, management has decided to practice price discrimination
3. (30 points)The Alpine Inn is located in Vermont near the Quebec border. After a comprehensive market study, management has decided to practice price discrimination by accepting the Canadian dollar at par with the US dollar and thereby charge a lower price to Canadian residents. The following are estimates of the demand for rooms at the inn: P(y) = 250-0.0ly Canadian residents) P(y) = 350-0.0ly (US residents) Where P(y) is the daily rate for a room (y) in US dollars. It is also known that the cost function is given by: c(y) =2,000,000+50y and MC(y)-50. a) Find the profit maximizing price and output for each market and the total profit. (5 pts) b) Illustrate how price and output is determined in each market. (5 pts) c) If the Alpine Inn were to discontinue this practice of price discrimination, what would be the monopoly outcome and profit? Illustrate this outcome graphically, clearly showing the price, quantity, monopoly gain and deadweight loss. (5 pts) d) What would happen if the Inn could perfectly price discriminate? Be specific in terms of consumer and producer surplus. (5 pts) e) Which situation is preferred: a), c), or d)? Explain fully. (5 pts) f) If the monopolist were regulated using average cost pricing, what would be the price and quantity offered in the market? (5 pts)
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