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eco204_HW_18 - University of Toronto Department of...

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University of Toronto, Department of Economics, ECO 204 2008 2009 S. Ajaz Hussain ECO 204 2008 2009 Ajaz Hussain HW 18 Question 1 In this question, you will practice 3 rd degree price discrimination. Suppose you are pricing manager of parking Toronto’s Pearson airport. You’ve identified two market segments: “short” and “long” term parkers. The demands for each segment are: Short term: P s = 3 – Q s /200 Long term: P L = 2 – Q L /200 P is hourly rate and Q is number of cars. There is a single garage with 600 spaces and you have to allocate spaces between the two segments. Let the MC of parking be negligible. (a) What is the garage owner’s objective? (b) Suppose the garage charges a single price for both segments. What is the optimal price? Hint: the short and long term parkers are being “aggregated”. (c) Suppose the garage charges each segment a different price what are each segment’s optimal prices? Hint: first try the problem as if there is no constraint and then if necessary as if
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