Company JFN is considering selling its product, and they have identified 5 different segments. Each segment has 100 people (assume that each person will buy only one unit). The segments differ in terms of their reservation prices (the maximum they will be willing to pay for the product).

The companys fixed costs are $2,000. The variable cost per unit is $20 between a production of 0 and 150 units. If the production goes beyond 150, we start having the positive effects of economies of scale, and the variable cost per unit declines.

VC = $18 between a production of 151 and 250 units

VC = $15 between a production of 251 and 350 units

VC = $13 between a production of 351 and 450 units

VC = $11 for a production of over 451 units.

Reservation price

Segment A $70

Segment B $50

Segment C $40

Segment D $30

Segment E $25

Question #1

Which price should the company select to maximize its profits?

Question #2

If the company could practice price discrimination (i.e. charge each segment their reservation price) how much would be their profit?

Question #3

The government considers the brand a necessity for the public and is willing to subsidize the company if the company agrees to sell it at a price that is accessible to all 5 segments. The subsidy will be $2 a unit. Should the company accept the offer?