(Answered) Price discrimination the do-drop-inn inc provides vacation

Management Studies

Price Discrimination. The Do-Drop-Inn, Inc. provides vacation lodging services to both family and senior citizen customers. Yearly demand and marginal revenue relations for overnight lodging services, Q, are as follows:

Family: PF = $40 - $0.0004QF

MRF = ∂TRF/ ∂QF = $40 - $0.0008QF

Senior Citizens: PS= $30 - $0.00025QS

MRS = ∂TRS/ ∂QS = $30 - $0.0005QS

Average variable costs for labour and materials are constant at $20 per unit.

A. Assuming the company can discriminate in price between family and senior citizen customers calculate the profit-maximizing price, output, and total profit contribution levels.

B. Calculate point price elasticities of demand for each customer class at the activity levels identified in part A. Are the differences in these elasticities consistent with your recommended price differential? Explain.

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