Price Discrimination

Price Discrimination - Practice Questions: Chapter 9 Price...

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Practice Questions: Chapter 9 Price Discrimination 1. American Tire and Rubber Company sells identical radial tires under the firm's own brand name and to discount stores for private labeling. Marginal cost is a constant $10 per tire, regardless of the sub- market in which the tire is sold. The firm has estimated the following demand curves for each of the markets. PB = 70 - 0.0005QB (brand name) PP = 20 - 0.0002QP (private label). Quantities are measured in thousands per month and price refers to the wholesale price. American currently sells brand name tires at a wholesale price of $28.50 and private label tires for a price of $17. Are these prices optimal for the firm? 2. A lower east-side cinema charges $3.00 per ticket for children under 12 years of age and $5.00 per ticket for anyone 12 years of age or older. The firm has estimated that the price elasticity of demand for tickets by those 12 years of age or older is -1.5. Calculate what the elasticity of demand for tickets must be
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Price Discrimination - Practice Questions: Chapter 9 Price...

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