Manchester United Football Club (MUFC) is fed up with NBC Sports and Sky Sports and decides to create its own website that exclusively streams their games. After doing a little market research they discover that their main audiences are teenage soccer aficionados and baseball-hating urban people. The demand curves for both these groups are as follows: Teenage soccer students' demand curve is given by Qteenagers = 300 – 10P. Baseball hating urban people's demand curve is given by Qurbanites = 150 – 5P. MUFC's marginal cost of streaming is constant and equal to $20. There are no fixed costs of production.
a. Suppose MUFC acts as a simple monopolist by charging anyone who visits the website the same price. What is the price and quantity that maximizes profits? What are MUFC's profits?
b. Using the aggregate (total) demand curve that you found in a), draw the graph for MUFC's equilibrium situation. Make sure to include the marginal revenue, average revenue and marginal cost curves (with endpoints!) and locate the profit maximizing price and quantity and label them.
c. MUFC changes their business strategy and insists that all customers purchase every game with their Facebook accounts. Based on customer's account information, they use an algorithm that can figure out whether the customers are teenagers or urbanites. This allows them to charge separate prices to each group, effectively engaging in third degree price discrimination. What is the profit maximizing price charged and quantity sold to teenagers? What is the profit maximizing price charged and quantity sold to urbanites? What are total profits for MUFC now?
d. MUFC becomes even more sophisticated and through dubious channels can acquire each customer's purchase history from which MUFC can exactly determine a customer's willingness to pay for the site. Effectively they now engage in first degree price discrimination. What are total profits now?