College students have a reservation price of $16 for movie tickets. Senior citiz

Question

College students have a reservation price of $16 for movie tickets. Senior citizens have a reservation price of $8. If the price of a movie ticket is $8 or less, then 5 senior citizens will demand a ticket. However, no senior citizens will demand a ticket at prices above S8. If the price of a movie ticket is $16 or less, then 10 college students will demand a ticket. However, no college students will demand a ticket at prices above $16. Given the information in the table, if a movie theater does not price discriminate, then it charges either the highest price the college students are willing to pay or the one that the senior citizens are willing to pay. Why $%8 doesn't it charge an intermediate price? (Hint: Discuss how the demand curves of these two groups are unusual). The theater would practice price discrimination by charging college students $16 and senior citizens Uniform, $8 Uniform, $16 Price Discrimination Profit from 10 College Students S80 $160 $160 Profit from 5 Senior Citizens $40 $0 $40 Total Profit $120 $160 $200 When not price discriminating, the firm does not charge an intermediate price (e.g., a price between $8 and S16) because at prices above $8 and below $16 0 A, demand is price sensitive in this price range O B. demand is zero in this price range. ° C. demand is perfectly inelastic in this price range. 0 D, demand is infinite in this price range. O E, demand is kinked in this price range.

Explanation / Answer

Ans is C

Demand is inelastic in a region of price from $8 and $16 because whatever the price in between $8 to $16, demand will all by college students and it will not be changed.

So monopolist should charge $16.

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