Price-discriminating firmCho 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 Cho 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. Cho’s marginal cost of providing admission tickets is zero.I hope you can see a clear picture. ## 6. Price-Discriminating FirmCho 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 Cho 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. Cho’s marginal cost of providing admission tickets is zero.### Graphs Explanation- **Market A Graph:** - X-axis: Quantity (Admission tickets per day) - Y-axis: Price (Dollars per ticket) - Lines: - Demand (D_A) is shown as a blue downward-sloping line, starting at $10 for 0 tickets and intersecting at 10 tickets and $0. - Marginal Revenue (MR_A) is shown as a black line, also downward-sloping, starting slightly below $10 and intersecting quantity at 5 tickets.- **Market B Graph:** - X-axis: Quantity (Admission tickets per day) - Y-axis: Price (Dollars per ticket) - Lines: - Demand (D_B) is shown as a blue downward-sloping line, starting at $8 for 0 tickets and intersecting at 8 tickets and $0. - Marginal Revenue (MR_B) is shown as a black line, also downward-sloping, starting slightly below $8, intersecting quantity at approximately 4 tickets.---### Pricing Strategy and Revenue CalculationSuppose that at first, Cho charges the same price of $4 per admission in both markets, so that the total number of admissions demanded is **8**.Suppose now that Cho decides to charge a different price in each market. To maximize revenue, Cho should charge **$6** per admission in Market A and **$4** per admission in Market B. At these prices, she will sell a total quantity of **9** admission tickets per day.### Table for Total Revenue Calculation| Price Policy | Total Revenue ||--------------------|---------------|| Nondiscriminatory | $ || Discriminatory | $ |Cho charges a lower price in the market with a relatively **high** price elasticity of demand.

If Cho decides to set a different price for different markets, to generate maximum revenue; then, he…

Answered: Cho owns a plot of land in the desert…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Price-discriminating firm

Cho 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 Cho 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. Cho’s marginal cost of providing admission tickets is zero.

I hope you can see a clear picture.

## 6. Price-Discriminating Firm

Cho 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 Cho 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. Cho’s marginal cost of providing admission tickets is zero.

### Graphs Explanation

- **Market A Graph:**
- X-axis: Quantity (Admission tickets per day)
- Y-axis: Price (Dollars per ticket)
- Lines:
- Demand (D_A) is shown as a blue downward-sloping line, starting at $10 for 0 tickets and intersecting at 10 tickets and $0.
- Marginal Revenue (MR_A) is shown as a black line, also downward-sloping, starting slightly below $10 and intersecting quantity at 5 tickets.

- **Market B Graph:**
- X-axis: Quantity (Admission tickets per day)
- Y-axis: Price (Dollars per ticket)
- Lines:
- Demand (D_B) is shown as a blue downward-sloping line, starting at $8 for 0 tickets and intersecting at 8 tickets and $0.
- Marginal Revenue (MR_B) is shown as a black line, also downward-sloping, starting slightly below $8, intersecting quantity at approximately 4 tickets.

---

### Pricing Strategy and Revenue Calculation

Suppose that at first, Cho charges the same price of $4 per admission in both markets, so that the total number of admissions demanded is **8**.

Suppose now that Cho decides to charge a different price in each market. To maximize revenue, Cho should charge **$6** per admission in Market A and **$4** per admission in Market B. At these prices, she will sell a total quantity of **9** admission tickets per day.

### Table for Total Revenue Calculation

| Price Policy | Total Revenue |
|--------------------|---------------|
| Nondiscriminatory | $ |
| Discriminatory | $ |

Cho charges a lower price in the market with a relatively **high** price elasticity of demand.

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