Discuss the below in detail:
Illustrate the logic behind some very common form of price discrimination (which one? ) - so let's solve a very-very-simple pricing problem.
Suppose that a fast-food restaurant is trying to figure out how to price 2 items on their menu: burgers and fries. Suppose further, that the customers of this restaurant come in 2 types/segments:
-Segment A: the customer in this segment is willing to pay at most $2 for a burger and at most $1 for a portion of fries.
-Segment B: they're the exact opposite, the customer in this segment is willing to pay at most $1 for a burger and at most $2 for a portion of fries.
The segments have equal sizes - to keep it simple, assume we have 50 customers in Segment A and 50 customers in Segment B.
Question: What is the revenue maximizing pricing scheme for these items? how should the restaurant price them?
(The costs of each item are not very relevant for this problem so we'll look at revenue instead of profit. The same idea holds if we want to include costs and look at profits instead - but the calculations would be a bit more complicated, "clouding" the main point).