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Suppose there are three types of consumers who attend concerts at your university performing arts center: students, staff, and faculty. Each of these groups has a different willingness to pay for tickets; within each group, willingness to pay is identical. There is a fixed cost of $1,000 to put on a concert, but there are essentially no variable costs.For each concert:
i. There are 140 students willing to pay $20.
ii. There are 200 staff members willing to pay $35.
iii. There are 100 faculty members willing to pay $50.

A) If the performing arts center can charge only one price, what price should it charge? What are profits at this price? B) If the performing arts center can price discriminate and charge two prices, one for students and another for faculty/staff, what are its profits?
C) If the performing arts center can perfectly price discriminate and charge students, staff, and faculty three separate prices, what are its profits?

Answer :

Answer:

A) If the performing arts center can charge only one price, what price should it charge? $35

What are profits at this price? $9,500

B) If the performing arts center can price discriminate and charge two prices, one for students and another for faculty/staff, what are its profits? $6,800

C) If the performing arts center can perfectly price discriminate and charge students, staff, and faculty three separate prices, what are its profits? $13,800

Explanation:

A. At an average price of $35. The students will be unable to attend and this will yield a profit of $9,500

B. At an average price of $20 for students and $50 for Faculty and Staff; the staff will b$13,800

Kindly refer to attachment for breakdown

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If the performing arts center can charge only one price, the price that'll be charged is $35 and the profit is $9500.

When the performing arts center discriminates, the profit will be $6800.

If the performing arts center can perfectly price discriminate and charge students, staff, and faculty three separate prices, the profit will be $13800.

The students revenue will be:

= 140 × $20 = $280

The faculty revenue will be:

= 100 × $50 = $5000

Fixed cost = $1000

The profit will then be:

= $2800 + $5000 - $1000

= $6800

When there's price discrimination in the three groups, the profit will be:

= $14800 - $1000.

= $13800

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