Suppose the demand for attending volleyball games at City University is given by the following three equations for three consumer groups:
Non-Students: Students: Children:
QDNS = 600 – 20PNS QDS = 500 – 25PS QDC = 400 – 40PC
Assume that the marginal cost of another attendee is zero, (MC = 0).
a. Determine the optimal price, quantity and resulting revenues for each group assuming the conditions for price discrimination are in place. What are total revenues?
b. Using your results from a., compute and compare the elasticity of demand for each group [Recall that to find price elasticity we use the equation: ????????pp = ???????????????? ∙ ???????? ].
c. Suppose the mayor declares that price discrimination is unfair and forbids charging different prices to different consumer groups. Determine the optimal price, quantity and resulting total revenues in this case. (Note: you should carry things out the four decimal places here.) Determine the change in total revenues compared to what you found in part a.