A hotel serves both business and vacation travelers and wishes to price-discriminate. The hotel manager can accurately identify and separate submarkets by looking for children when travelers check in to the hotel. If travelers have no children, they must pay the "business" price; if they have one or more children with them, they pay the "vacation" price. The demand for "business" is PB = 80 - 0.2Q and for "vacation" PV = 40 - 0.1Q. The hotel's marginal and average costs are constant and equal to € 20 per unit.
a. Construct the MRB, MRV, and MRTotal curves, and the LMC-curve
b. What is the profit-maximizing number of business travelers to serve? Vacationers?
c. What price should be charged to each type of traveler? How much revenue and profit is collected from each type of traveler?
d. Calculate the price elasticities at the prices charged in each submarket. Do these price elasticities have the expected relative magnitudes? Explain.
e. If the hotel charged a uniform price to all travelers, what price would it be? How much revenue would the hotel collect? How much profit would it make? Is price discrimination more or less profitable than uniform pricing?