Once more, let us return to the yo-yo market. Consider one firm, YoHoo YoYo's. YoHoo's production method means that is has constant marginal cost of $3 per yo yo. YoHoo's marketing staff breaks its customers into 3 segments: - kids, with demand Pk=1515Qk - adults who never grew up, with demand Pa=155Qa - clowns, with demand Pc=15Qc If all of YoHoo's customers are lumped together, the total demand (the horizontal summation of those three demand curves) is: P=15 - Q. e. They quickly realize that that would be silly (unimplementable) in this case. So, they decide to use good old fashioned 3rd degree price discrimination instead. What prices should they charge each customer type? How many will they sell to each type? f. At the prices they decide to charge in part e., what are the elasticities of demand by the three types of customers? Do your answers make sense, given the prices you calculated that they should charge each type? Explain. g. One of the marketing people has a new idea - two-part pricing (2PP), within segments. Assuming this could be done, calculate the entry fee, per YoYo price, PS, CS, and DWL for each of the three segments. h. If they could not implement 2PP for the three segments separately, would you recommend that they use a single 2PP plan for all of their customers? Explain in words (no calculation is required). Once more, let us return to the yo-yo market. Consider one firm, YoHoo YoYo's. YoHoo's production method means that is has constant marginal cost of $3 per yo yo. YoHoo's marketing staff breaks its customers into 3 segments: - kids, with demand Pk=1515Qk - adults who never grew up, with demand Pa=155Qa - clowns, with demand Pc=15Qc If all of YoHoo's customers are lumped together, the total demand (the horizontal summation of those three demand curves) is: P=15 - Q. e. They quickly realize that that would be silly (unimplementable) in this case. So, they decide to use good old fashioned 3rd degree price discrimination instead. What prices should they charge each customer type? How many will they sell to each type? f. At the prices they decide to charge in part e., what are the elasticities of demand by the three types of customers? Do your answers make sense, given the prices you calculated that they should charge each type? Explain. g. One of the marketing people has a new idea - two-part pricing (2PP), within segments. Assuming this could be done, calculate the entry fee, per YoYo price, PS, CS, and DWL for each of the three segments. h. If they could not implement 2PP for the three segments separately, would you recommend that they use a single 2PP plan for all of their customers? Explain in words (no calculation is required)
