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Consider the following price discrimination practice, when a bookseller, Redalot, is pricing of a book. When price of a book is set at P= $30/book,
Consider the following price discrimination practice, when a bookseller, Redalot, is pricing of a book.
When price of a book is set at P= $30/book, it attracts 100,000 buyers whose willingness-to-pay is $30.
When price of a book is set at P=$5/book, it attracts additional 400,000 buyers whose willingness-to-pay is $5.
Assume total cost(TC) is a fixed value, i.e. when considering profit(Profit), it only needs to consider total revenue(TR).
- (4points)Senario 1. If Redalot charges a single price to buyers, which price should it charge to maximize profit? (Hint: Calculate total revenue by setting either price, then compare.)
- (4points) Senario2. If Redalot practices "price discrimination" - set different price for different customers according to customers' willingness-to-pay, that is, set P=$30/book for the 100,000 buyers meanwhile set P=$5/book for the 400,000 buyers, what is the Redalot's total revenue?
- (4points)Compare Senario 1 and Senario 2, which pricing strategy - single price or price discrimination, is generating more total revenue(thus profit) for Redalot?
- (4points)What is the difficulty for Redalot to do "price discrimination"? (Hint: one of the three lessons learned from this exercise.)
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