Rachel, an ingenious USC student, develops a new personalized laser gun. After graduating, she starts her business. As part of her business plan:
- The lasers operate on user hand print recognition so resale is not possible
- Annual market demand curve faced by the firm from nonstudents is 5500 - 100P = Q
- Annual market demand curve faced by the firm from students is 2000 - 50P = Q
- Fixed costs are $20,000 per year.
- Variable cost is $15 per gun.
Where P is the price of the gun and Q is the quantity.
1. How should Rachel price if she is trying to supply both customer segments and can easily segment the two types of customers?
2. How many guns will Rachel sell to nonstudents?
3. How many guns will she sell to students?
4. What will her total profit be? Now suppose the government gets involved and forces Rachel to charge the same price to all customers.
5. What is the demand curve for guns?
6. What should the price and quantity be?
7. How many guns will be sold to students?
8. How many guns will be sold to nonstudents?
9. How much in profits did Rachel lose by not being able to discriminate?