Final answer:
To increase total revenue at a bakery, one could implement third-degree price discrimination, offering discounts to specific customer segments like students or senior citizens. This method targets the varying price elasticity of demand across groups, optimizing sales among price-sensitive consumers while capturing more value from those with less elastic demand.
Step-by-step explanation:
If I owned a bakery and wanted to increase total revenue through price discrimination, I might implement a third-degree price discrimination strategy. This would involve segmenting customers based on identifiable characteristics such as age or occupation and offering different prices accordingly.
For instance, I could offer a discount to students and senior citizens while charging the full price to regular adults. This approach adjusts prices based on the varying price elasticity of demand across different groups of consumers.
To consumers, this might look like a bakery with varying prices for the same goods depending on customer segments – a common example is 'student discounts' or 'senior discounts' for certain products. By tailoring prices to different groups, the bakery can maximize its sales among price-sensitive customers while also capturing higher willingness to pay from customers with a less elastic demand for bakery goods.
This strategy is justified by the understanding that different groups of customers have different sensitivities to price, and thus, charging each segment a price closer to their maximum willingness to pay can lead to an increase in total revenue without affecting the quantity sold negatively.