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Subpart (a):
The profit from the
Subpart (a):
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Explanation of Solution
The market is a structure where there are buyers who buy and sellers who sell, and the exchange of goods and services takes place between them. The
The profit maximizing point of a firm is the point where the firms’ marginal cost is equal to the marginal revenue. Here, it is given that the marginal revenue of senior citizens is
Thus, the profit maximizing quantity by the seniors can be calculated by equating MR equal to Mc as follows:
The profit maximizing price can be calculated by substituting the profit maximizing quantity in the equation for price as follows:
Thus, the profit maximizing price for seniors is $30, and the quantity is 40. Similarly, the items for the others can be calculated as follows:
The profit maximizing price can be calculated by substituting the profit maximizing quantity in the equation for price as follows:
Thus, the profit maximizing price for others is $55, and the quantity is 45.
Concept introduction:
Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.
Subpart (b):
The profit from the price discrimination.
Subpart (b):
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Explanation of Solution
When the percentage of discount that have to be offered to the seniors have to be calculated, the price that the seniors are charged must be subtracted from the price charged for others and divided with the price charged for others as follows:
Thus, the seniors will be offered a discount of 45 percent.
Concept introduction:
Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.
Subpart (c):
The profit from the price discrimination.
Subpart (c):
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Explanation of Solution
The total cost of the firm can be calculated by multiplying the total quantity with the marginal cost, and the total revenue of the firm can be calculated by multiplying the quantities demanded by seniors and others with their respective prices and adding them together. By subtracting the total cost from the total revenue, the total profit of the firm can be calculated. This can be done as follows:
Thus, the total profit of the firm is $2,825.
Concept introduction:
Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.
Subpart (d):
The profit from the price discrimination.
Subpart (d):
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Explanation of Solution
When there is no possibility of price discrimination in the market, the firm faces only one single marginal revenue and market demand. Since there is no change in the marginal cost of the firm, the profit maximizing quantity can be calculated by equating the marginal revenue and marginal cost as follows:
The profit maximizing price can be calculated by substituting the profit maximizing quantity in the equation for price as follows:
Thus, the profit maximizing price for others is $38.5 and since the quantity cannot be a fraction, it is 86.
Concept introduction:
Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.
Subpart (e):
The profit from the price discrimination.
Subpart (e):
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Explanation of Solution
The profit of the market can be calculated by subtracting the total cost from the total revenue as follows:
Thus, the profit of the market is $2,436.75, which means that the total profit is less than the previous level profit when the market was able to price discriminate on the basis of age.
Concept introduction:
Price discrimination: The price discrimination is the practice of charging different prices for the exact same commodity for different consumers in the market.
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Chapter 14 Solutions
Modern Principles of Economics
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