A market consists of two population segments, A and B. An individual in segment A has demand for your product q = 50 – p. An individual in segment B has demand for your product q = 120 – 2p. Segment A has 1000 people in it. Segment B has 1200 people in it. Total cost of producing q units is C = 5000 + 20q.
Assume that you must charge the same price to both segments. What is the profit-maximizing price? What are your profits?
Imagine now that members of segment A all wear a scarlet “A” on their shirts or blouses and that you can legally charge different prices to these people. What price do you charge to the scarlet “A” people? What price do you charge to those without the scarlet “A”? What are your profits now?