Question

Valerie owns a plot of land in the desert that isn't worth much. One day, a giant meteor falls on her property. The event attracts scientists and tourists, and Valerie decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show demand (D) curves and marginal revenue (MR) curves for the two markets. Valerie's marginal cost of providing admission tickets is zero. Market A Market B 10 10 0 1 2 3 4 5 6789 10 0 1 2 3 4 5 6789 10 QUANTITY (Admission tickets per day) QUANTITY (Admission tickets per day) Suppose that at first, Valerie charges the same price of $4 per admission in both markets so that the total number of admissions demanded is Suppose now that Valerie decides to charge a different price in each market. To maximize revenue, Valerie should charge S will sell a total quantity of per admission in Market A and S per admission in Market B. At these prices, she admission tickets per day Complete the following table by calculating Valerie's total revenue from selling in both markets under the nondiscriminatory as well as the discriminatory price policy, Price Policy Nondiscriminatory Discriminatory Total Revenue Valerie charges a lower price in the market with a relativelyprice elasticity of demand

Answer 1

At $4, total number of admissions demanded= 6+2=8

To maximize revenue, MR=MC. Here, MC=0. Therefore, at MR=0, total q=5+3=8

In market A, Valerie charges $5 per admission and $3 in Market B.

Total quantity of tickets=5+3=8

Total revenue under non-discriminatory price policy=$(8*4)=$32

Total revenue under discriminatory price policy=$(5*5)+$(3*3)=$(25+9)=$34

Valerie charges a lower price in the market with relatively greater price elasticity of demand, as more responsive the demand is to price, greater would be the fall in demand as price increases.