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David and Andrea operate a hair salon. They have little else to do with their time, and so their marginal cost of production is zero.
David and Andrea operate a hair salon. They have little else to do with their time, and so their marginal cost of production is zero. They sell haircuts to three groups of people: men, women, and children. The demand curves for these three equally-sized groups take the same form, described by the formula: P = Pmax - Q but where Pmax varies according the group. The three markets differ according to the value of Pmax. Specifically: Pmax Women 220 Men 180 Children 80 A proportion 5% of potential buyers (an equal fraction of all buyer types) believe that discriminatory pricing against either women or children is unfair. Such unfairness is perceived if either group faces a price that is strictly higher than the price charged to any other group. (They are, however, perfectly content if both of these groups are offered the lowest amongst any set of prices charged.) Such customers refuse to buy from a supplier who engages in such a discriminatory practice. Seeking to maximize profit, Andrea and David decide to: O charge P = 110 for women, P = 90 for men, P = 40 for children. O charge P = 100 for both men and women, P = 40 for children. O charge P = 100 for all three groups. O charge P = 80 for all three groups O charge P = 40 for all three groups
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