Problem
A pizza shop in Leeds near University Parkinson Steps discovers that if it charges all of its customers the same price, its profit-maximising output is 160 pizzas per evening at a price of £6/pizza. Its marginal costs are constant and equal £2 per pizza.
The pizza shop owner now discovers that it has two very different types of customer - 'students' and 'everyone else'. It can maximise its profits by selling 60 pizzas per evening to students for a price of £5 per pizza and 100 pizzas per evening to everyone else for a price of £7 per pizza. Draw a diagram showing the profit-maximising price and output (a) when all customers are charged the same price and (b) when students are charged a different price from everyone else.