The Bookshop, the only one on campus, is very popular with students and non-students. Its bestselling software package, Math Angel, is popular among both groups of customers. The demand for Math Angel from the students is given by p = 120-qs, and from the non- students by p = 210 −4n. The cost of each software package for the bookshop is $60. 3 a) Currently, the Bookshop charges the same price for Math Angel to students and non- students. Can you determine the profit-maximising price in this case? How many software packages will students buy? And non-students? b) One of the economics students advised the manager of the Bookshop to introduce third- degree price discrimination: charge different prices for the software to students and non- students. So, if a student shows their student ID, then s/he can buy the student edition of Math Angel at the special student price; otherwise, s/he has to buy the regular edition at a regular (non-student) price. The student version has some features of the regular version of the software disabled. (Note that is a standard business practice). Since students never use these more advanced features anyway, their demand for both (student and regular) versions is the same. What prices should Bookshop charge to students and non- students to maximise its profit? How many packages will each group buy? c) Explain (without doing any calculations) which profit will be higher: in part (a) or (b)? What does it tell us about the apparent generosity of companies and government when they charge special discounted prices for goods, transport, utilities, services and so on to students and pensioners? d) Illustrate your solution on a graph: show the demand of each group and the total demand, corresponding marginal revenues, MC, equilibrium prices and quantities for parts (a) and (b) on the same graph. Compare total welfare (social surplus), consumer surplus, producer surplus and deadweight loss in parts (a) and (b). As usual, we need to ask Cui bono? Who benefits?
The Bookshop, the only one on campus, is very popular with students and non-students. Its bestselling software package, Math Angel, is popular among both groups of customers. The demand for Math Angel from the students is given by p = 120-qs, and from the non- students by p = 210 −4n. The cost of each software package for the bookshop is $60. 3 a) Currently, the Bookshop charges the same price for Math Angel to students and non- students. Can you determine the profit-maximising price in this case? How many software packages will students buy? And non-students? b) One of the economics students advised the manager of the Bookshop to introduce third- degree price discrimination: charge different prices for the software to students and non- students. So, if a student shows their student ID, then s/he can buy the student edition of Math Angel at the special student price; otherwise, s/he has to buy the regular edition at a regular (non-student) price. The student version has some features of the regular version of the software disabled. (Note that is a standard business practice). Since students never use these more advanced features anyway, their demand for both (student and regular) versions is the same. What prices should Bookshop charge to students and non- students to maximise its profit? How many packages will each group buy? c) Explain (without doing any calculations) which profit will be higher: in part (a) or (b)? What does it tell us about the apparent generosity of companies and government when they charge special discounted prices for goods, transport, utilities, services and so on to students and pensioners? d) Illustrate your solution on a graph: show the demand of each group and the total demand, corresponding marginal revenues, MC, equilibrium prices and quantities for parts (a) and (b) on the same graph. Compare total welfare (social surplus), consumer surplus, producer surplus and deadweight loss in parts (a) and (b). As usual, we need to ask Cui bono? Who benefits?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Hi I need help on a) b) & e). Thanks!
Transcribed Image Text:The Bookshop, the only one on campus, is very popular with students and non-students. Its
bestselling software package, Math Angel, is popular among both groups of customers. The
demand for Math Angel from the students is given by p = 120-qs, and from the non-
students by p = 210 - In. The cost of each software package for the bookshop is $60.
3
a) Currently, the Bookshop charges the same price for Math Angel to students and non-
students. Can you determine the profit-maximising price in this case? How many
software packages will students buy? And non-students?
b) One of the economics students advised the manager of the Bookshop to introduce third-
degree price discrimination: charge different prices for the software to students and non-
students. So, if a student shows their student ID, then s/he can buy the student edition of
Math Angel at the special student price; otherwise, s/he has to buy the regular edition at a
regular (non-student) price. The student version has some features of the regular version
of the software disabled. (Note that it is a standard business practice). Since students
never use these more advanced features anyway, their demand for both (student and
regular) versions is the same. What prices should Bookshop charge to students and non-
students to maximise its profit? How many packages will each group buy?
c) Explain (without doing any calculations) which profit will be higher: in part (a) or (b)?
What does it tell us about the apparent generosity of companies and government when
they charge special discounted prices for goods, transport, utilities, services and so on to
students and pensioners?
d) Illustrate your solution on a graph: show the demand of each group and the total demand,
corresponding marginal revenues, MC, equilibrium prices and quantities for parts (a) and
(b) on the same graph.
e) Compare total welfare (social surplus), consumer surplus, producer surplus and
deadweight loss in parts (a) and (b). As usual, we need to ask Cui bono? Who benefits?
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