You have been hired by Coca Cola to devise their best differential pricing strategy.

Assume Coca Cola segments the market into two groups- Group A and B. (You can motivate these groups by keeping in mind one of your market segmentation mentioned in a)) Assume that consumers in Group A and B have preferences

U^A(x, C) = C^0.2x^0.8

U^B(x, C) = C^0.7 x^0.3

Where x: is quantity of product x and C is the quantity of 200 ml Coca Cola.

If the average income in Group A is Rs 80,000 per month and that of Group B is Rs 40,000 per month and price of x is Re 1. Assume group size of A is 100 and that of B is 50.

(For Group A: MU_C = 0.2C^-0.8X^0.8 ; MU_X = 0.8C^0.2X^-0.2 )

(For Group B: MU_C = 0.7C^-0.3X^0.3 ; MU_X = 0.3C^0.7X^-0.7 )

a.Find the aggregate demand for coca cola for group A (1.5 points)

b.Find the aggregate demand for coca cola for group B (1.5 points)

c.Find the aggregate demand for coca cola (2 points)

Assume that Coca Cola has dropped the idea of differential pricing but is mindful of the segmented market.

"Starting this month, all Coca-Cola's beverages in 200 ml bottles will be sold at a flat Rs 10, down from Rs 15. "Its heavy discounting and at the cost of profitability.

d.Find the arc elasticity in this range for the aggregate demand curve. (3 points)

e.How will revenue change for Coca-Cola based on your analysis? (2 points)