02 Jun Question 1. Concert price have increased coincidentally with illegal
Question
1. Concert price have increased coincidentally with illegal downloading of music off the internet. Using your knowledge of multiproduct pricing, explain the causal link between these two events.
2. You run a movie theater in a small town with only ten people. These ten individuals have willingness-to-pay values of {$1, $2, $3, $4, $5, $6, $7, $8, $9, $10}. Your only cost is a $2.50 fee that you must pay to the film distributor for every ticket you sell. Your marginal cost is, therefore, $2.50.
a. What is the profit-maximizing uniform price (i.e. no price discrimination)? How much profit do you earn at this price level?
b. Suppose that you learn that all of those with low values of {$1, $2, $3, $4, $5} are senior citizens, thereby allowing you to employ a direct price discrimination strategy based on consumer age. What prices should you charge to seniors and non-seniors? How much profit do you earn using this pricing strategy?
3. Some internet retailers track whether its customers have recently visited popular price-comparison websites. Why might these retailers offer different prices to those who have and have not recently visited price-comparison sites? If different prices are offered, which group will be offered the lower price? How well would this strategy work if customers knew about the internet retailers’ plan?
4. Suppose that you work for a national cell phone company. After conducting a survey of potential users, you have determined that your cell phone customers can be classified as either “casual” or “heavy” users. The numbers of casual and heavy users are equal. Your survey reveals that that casual and heavy cell phone users place the following values on your two different calling plans:
Calling Plan: Casual user Heavy user
500 Anytime Minutes $45 $65
Unlimited Minutes $60 $100
Assuming that the marginal cost of providing cell phone service is zero, calculate optimal prices and profits under each of the following pricing strategies:
a. Sell only to heavy cell phone users
b. Sell to all users at a single low price
c. Sell to both groups using price discrimination (this is indirect price discrimination)
d. Which of these three strategies yields the most profit for the cell phone provider?
5. An amusement park is considering changing its pricing system from a pay-per-ride system to a single entrance fee entitling the entrant to unlimited rides. Assume that the park is not close to approaching the attendance capacity. The marginal value for rides for the typical entrant is listed below:
Quantity (# of rides) Marginal value ($)
1 $2.50
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