You are the manager of a gas station in a small town in the United States, and your goal is to maximize profits. Based on your experience, the elasticity of demand of Texans for a car wash is –2, and that of non-Texans is –1.5. Your marginal cost is $6.
a. Are the conditions necessary for price discrimination to be an effective means of enhancing profits being met? Explain fully.
b. What is the profit-maximizing price to charge a Texan for a car wash?
c. What is the profit-maximizing price to charge a Californian for a car wash?