3) Suppose that ESPN 8 analysts discover that their subscribers are primarily from CA and FL. The demand curves for each subgroup are (Q is still measured in 1000s) QF = 15 - PF QC = 12.5 - PC (notice these sum to the original demand curve in #2)

a) Use these submarket demand curves and the price from 2c to find how many subscriptions they sell in each market charging a single price (ugly decimals here).

b) Calculate a marginal revenue function for each submarket. Use the 3a quantities to find the MR in each market when the monopoly charges a single price. Use these MR numbers to show why the monopoly could earn higher profits by charging different prices. Rearrange quantity from low MR to high MR. How would you actually accomplish that switch?

c) Describe the requirements for price discrimination, and briefly discuss whether you think ESPN 8 would be able to price discriminate in this setting.

d) Assume that the firm can charge each group a different price. Calculate the new profit maximizing price and quantity for each submarket, and the total profit the firm will earn by price discriminating. Compare this outcome to the single price case. Calculate marginal revenue functions for each submarket (i.e. MRC and MRF), and use the profit maximizing condition MRC = MRF = MC to find the optimal quantities. Plug these into each demand curve to find the optimal prices. e) Use the Lerner Markup formula to confirm the profit maximizing price the firm should charge each group. You need to calculate PED for each market, using the prices and quantities from part

d). You should get the same prices as in part d).