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Economics 310 Price Theory

Economics 310 Price Theory. Price Discrimination Homework Department of Economics College of Business and Economics California State University-Northridge Professor Kenneth Ng. Wednesday, November 19, 2014.

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Economics 310 Price Theory

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  1. Economics 310Price Theory Price Discrimination Homework Department of Economics College of Business and Economics California State University-Northridge Professor Kenneth Ng Wednesday, November 19, 2014

  2. Six Flags Magic Mountain Season Passes purchased now are good until December 31, 2001. Buy your Six Flags Magic Mountain Season Pass and enjoy unlimited visits throughout 2001. It is good at all Six Flags theme parks across the country, including Six Flags Marine World in Vallejo, CA. (Passes must be processed at park they are purchased from.) Plus, passholders receive newsletters with important park information and various bonus coupons! Season Passes are available at the front gate or by calling (661) 255-0208.

  3. List the pricing scheme(s) used by Six Flags for the Magic Mountain and Hurricane Harbor amusement parks. Give a brief description of each type of pricing scheme(s) utilized. • Bundling: Combo Pass • 3rd degree price discrimination-adult, children’s, seniors prices. • All-or-nothing offer: Admission to park. • Quantity Discount: Family pass. • Choose two of those scheme(s) and show graphically and explain the economic logic behind each scheme.

  4. All or Nothing Offer . The total willingness to pay is the are under the demand curve to Q*. The admission price will be set to grab off as much of the total willingness to pay as possible. The limiting factor is knowing the person’s demand curve. D Price MR Consumer Surplus Profit: $42.99 Consumer Surplus 0 Quantity per week Q*

  5. Profit: $21.50 Profit: $42.99 Third Degree Price Discrimination plus All-or-Nothing Offer. The individual on the left has a higher willingness to pay. If the monopolists makes an all-or-nothing offer to the person on the left, he will forego the profit he could earn from the person on the right. By engaging in third degree price discrimination, the monopolist can increase his profits by making separate all-or-nothing offers. D Price D MR Price Consumer Surplus Profit: $42.99 Consumer Surplus 0 0

  6. Bundling The graph shows the maximum willingness to pay for three individuals-A, B, and C for admission to Magic Mountain and Hurricane Harbor. D wants to go only to Magic Mountain. A wants to go only to Hurricane Harbor. If the firm charges $41.99 and $19.99, the will get a total of $60.98 from A and D. B will not buy. By bundling the two parks together for $52.99, the monopolist will get revenue from B and not lose any revenue from D and A. Magic Mountain $42 D 40 B A 15 19.99 Hurricane Harbor

  7. Quantity Discount-Family Season Pass. The graph shows the demand for a family of 8. The first admission costs $85. Admissions 2-4 cost $65 each. The next 4 admissions cost $17.50 each. The more admissions the family buys the lower the unit price. D Price Profit: $85 Profit: $195 Profit: $210 0 Quantity per week Q* 1 4 8

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