QUESTION 4 first-degree Tim's Tires sells tires under the firm's own brand name and private label tires to discount stores. The tires sold in both sub-markets are identical, and the marginal cost is constant at $15 second-degree per tire for both types. The firm has estimated the following demand curves for each of the markets: third-degree 15 PB = 70 - 0.0005QB (brand name) 17.5 24.64 Pp = 20 - 0.0002Qp (private label). 30 Quantities are measured in thousands per month and price refers to the wholesale price. 42.5 45 By selling the brand name and private label tires at different prices, the firm is using price discrimination. 12,500 25,000 31,250 With price discrimination, the optimal price of brand name tires is and the optimal quantity is v . The optimal price of private label tires is 65,000 67,500 and the optimal quantity is v . The firm's TOTAL profit is (assume fixed costs are zero). 600,000 650,893 If the firm cannot price discriminate and must charge a single price in the market, the optimal price is and the optimal quantity is v . The firm's total 1,255,223 1,512,500 profit in this case is approximately (again, assume fixed costs are zero). 1,543,750 2,000,000 elastic When price discriminating, the firm charges a higher price in the brand name market because demand for brand name tires is more than demand for private label tires. inelastic sensitive That is, consumers of private label tires are more to prices. insensitive