GMG, a cinema complex, is considering charging a different price for the afternoon showings of its films compared with the evening ticket price for the same films. It has estimated its afternoon and evening demand m functions to be: PA 8.5 0.25QA PE = 12.5-0.4QE Where PA and PE are ticket prices (in £) and QA and QE are number of customers per week (in hundreds). GMG has estimated that its fixed costs are £2,000 per week, and that its variable costs are 50 pence per customer. REQUIRED: i. Calculate the price that GMG should charge if it does not use price discrimination, assuming its objective is to maximize profit. ii. Calculate the prices that GMG should charge if it does use price discrimination. iii. Calculate the price elasticities of demand in the case of price discrimination. iv. How much difference does price discrimination make to profit?
GMG, a cinema complex, is considering charging a different price for the afternoon showings of its films compared with the evening ticket price for the same films. It has estimated its afternoon and evening demand m functions to be: PA 8.5 0.25QA PE = 12.5-0.4QE Where PA and PE are ticket prices (in £) and QA and QE are number of customers per week (in hundreds). GMG has estimated that its fixed costs are £2,000 per week, and that its variable costs are 50 pence per customer. REQUIRED: i. Calculate the price that GMG should charge if it does not use price discrimination, assuming its objective is to maximize profit. ii. Calculate the prices that GMG should charge if it does use price discrimination. iii. Calculate the price elasticities of demand in the case of price discrimination. iv. How much difference does price discrimination make to profit?
Chapter18: Asymmetric Information
Section: Chapter Questions
Problem 18.3P
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Transcribed Image Text:GMG, a cinema complex, is considering charging a different price for the afternoon
showings of its films compared with the evening ticket price for the same films. It has
estimated its afternoon and evening demand m functions to be:
PA 8.5 0.25QA
PE = 12.5-0.4QE
Where PA and PE are ticket prices (in £) and QA and QE are number of customers per
week (in hundreds). GMG has estimated that its fixed costs are £2,000 per week, and that
its variable costs are 50 pence per customer.
REQUIRED:
i. Calculate the price that GMG should charge if it does not use price
discrimination, assuming its objective is to maximize profit.
ii. Calculate the prices that GMG should charge if it does use price discrimination.
iii. Calculate the price elasticities of demand in the case of price discrimination.
iv. How much difference does price discrimination make to profit?
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