In this part of the assignment you will be setting prices for two different group. Each group has a different sensititvity to price. This type of problem can arise several ways: (1) People's sensitivity to price can vary by income, and income levels vary by neighborhood. If you know peoples' addresses, so you can quote them prices depending on where they live; (2) People with insurance may be less sensitive to prices; you would charge people with insurance one price and people without insurance another price. All you observe are the prices, which you set, and the resulting quantity demanded. As with Part 1, you want to maximize profits. What you will be doing is known as 3rd degree price discrimination.

Fixed cost: 150,000

Marginal cost (constant): 50.00 Note: total variable cost is MC x Qd

Low income section of town

Price, low: $50.00 <=== Change the price here.

Qd, low: 2,744 <=== and the quantity demanded will appear here.

High income section of town

Price, high: $50.00 <=== Change the price here.

Qd, high: 11,711 <=== and the quantity demanded will appear here.

In Moodle, report the following:

4 Price for the low income section of town

5 Qd, low

6 Price for the high income section of town

7 Qd, high

8 Profits