Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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).

  1. (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.)
  2. (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?
  3. (4points)Compare Senario 1 and Senario 2, which pricing strategy - single price or price discrimination, is generating more total revenue(thus profit) for Redalot?
  4. (4points)What is the difficulty for Redalot to do "price discrimination"? (Hint: one of the three lessons learned from this exercise.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Human Resources In The Urban Economy

Authors: Mark Perlman

1st Edition

1317332474, 9781317332473

More Books

Students also viewed these Economics questions

Question

mple 10. Determine d dx S 0 t dt.

Answered: 1 week ago