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The movie theater in College town serves two kinds of customers: students and pro-fessors. There are 900 students and 100 professors in College town. Each student’s willingness to pay for a movie ticket is $5. Each professor’s willingness to pay for a movie ticket is $10. Each will buy at most one ticket. The movie theater’s marginal cost per ticket is constant at $3, and there is no fixed cost.

a. Suppose the movie theater cannot price-discriminate and needs to charge both students and professors the same price per ticket. If the movie theater charges $5, who will buy tickets and what will the movie theater’s profit be? How large is consumer surplus?

b. If the movie theater charges $10, who will buy movie tickets and what will the movie theater’s profit be? How large is consumer surplus?

Now suppose that, if it chooses to, the movie theater can price-discriminate between students and professors by requiring students to show their student ID. If the movie theater charges students $5 and professors $10, how much profit will the movie theater make? How large is consumer surplus?

Microeconomics, Economics

  • Category:- Microeconomics
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