A team knows that there are three types of consumers: Casual (c), Typical (t), and Super (s). Consumers within each group are identical, and the team knows the demand of a representative consumer of each type:

Pc = 40 2Qc

Pt = 50 2Qt

Ps = 70 2Qs

The team cannot distinguish between different types of consumers, and instead engage in menu pricing. The marginal cost of production is constant at MC = 20. Follow the steps below to determine the packages (quantity and price) sold to each type of fan.

a) The Casual fan package extracts all surplus. How many units will be sold to the Casual fan? What is the price of the Casual fan package?

b) What is a Typical fan surplus from the Casual package in part a)? (Hint: Find a Typical fan's willingness to pay for the package and subtract the actual price of the package.)

c) How many units will be sold to each Typical fan? What is the price of the Typical fan package?

d) What is a Super fan surplus from the Casual package in part a)? What is the Super fan surplus from the Typical package in part c)?

e) How many units will be sold to each Super fan? What is the price of the Super fan package?

f) Check one more "incentive compatibility constraint": Does the Typical fan get more surplus from the Typical package in c) or from the Super package in e)? Does this menu pricing scheme yield the intended result? Briefly explain.