a)Describe what Price Discrimination means, and explain the various forms it can take. In your answer explain the rationale behind why a firm might use it, and give relevant examples.

(12 marks)

b)The M90 Bus Company carries passengers on its Limerick to Dublin route. The sales manager has observed that these passengers can be segmented into 2 distinct categories: Students and Full-Fare paying customers.Research undertaken by her department has determined that the monthly Price Function for each category is as follows:

Students:Full-Fare Paying Customers

P_s = 30 - 0.003Q_sP_ff = 40 - 0.005Q_ff

Monthly Fixed Costs are 40,000 and the Marginal Cost of providing a seat on the route is 8

The sales manager believed that if the firm can successfully Price Discriminate between the 2 categories of passenger, the firm's profit would be greater than if all passengers are charged the same fare.

Assuming M90 Bus Company can Price Discriminate between Students and Full-Fare passengers calculate:

i)The monthly Quantity of Students expected to travel on the Limerick-Dublin route, and the Price of a student ticket.

(15 marks)

ii)The monthly Quantity of Full-Fare paying passengers expected to travel on the Limerick-Dublin route, and the cost of a full-price ticket

(15 marks)

iii)The total monthly profit the M90 Bus Company could earn if they can successfully Price Discriminate

(10 marks)

iv)If the Hedgehog Bus Company did not Price Discriminate how would you expect the Price, Quantity and Total Monthly Profit that would occur to compare to your results in parts (i) to (iii) above?