1. A coffee shop manager realizes that demand for coffee is more elastic among students, and is trying to determine the optimal pricing schedule. Specifically, she estimates the following average demands:
2. Student: qS = 18 5p;
3. Non-student: qN = 10 2p.
4. The two groups visit the coffee shop in equal numbers on average. Assume that the
5. marginal cost for coffee is $2 and there is no fixed cost.
6. 1. If the coffee shop cannot distinguish whether customers are students or not, what is the optimal uniform price pU ?

Econ 3P06: Problem Set #4 2

1. Assume that students can buy a cup of coffee with a discounted price pS by showing their student ID card and non-students can buy it with a normal price pN . What price should be set for each group?
2. How has price discrimination affected the coffee shop's profit?
3. Calculate consumer surplus under uniform pricing and with price discrimination. How does price discrimination affect consumer surplus?