You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customer
Price Adults Children
10 0 0
9 100 0
8 200 0
7 300 0
6 300 0
5 300 100
4 300 200
3 300 200
2 300 200
1 300 200
a. To maximize profit, what price would you charge for an adult ticket? For a child's ticket? How much profit do you make?
b. The city council passes a law prohibiting you from charging different prices to different customers. What price do you set for a ticket now? How much profit do you make?
c. Who is worse off because of the law prohibiting price discrimination? Who is better off?
d. If the fixed cost of the play were $2,500 rather than $2,000 how would your answers to parts a, b, and c change?