Topic: Managerial Economics

Suppose there are two demand curves (e.g. two different sets of consumers) for the same good. The two demand curves are given by the following equations:

Q₁ = 14 -P₁(group 1)

Q₂ = 12 - 2P₂ (group 2)

Assume Total Cost = 4(Q₁+Q₂)where Q1+Q2 = Q total

a. Find the profit-maximizing outputs and prices in each group of consumers for this price-setting firm.

b. Calculate the own-price elasticity of demands for the two different groups of consumers at the profit-maximizing quantities and prices.

c. Can you say anything about how the price charged in each market relates to the relative price elasticities of demand you calculated in part b?

d. What is a real-world example of third-degree price discrimination, and discuss what is driving the reason for the higher price in one group of consumers vs another group of consumers in the context of your answer. Remember, the differences in prices should not be due to the differences in the costs of production of the good/service sold in the two different markets. Just a few sentences.