A pipeline transports gasoline from a refinery at point A to destinations at R and T. The marginal cost of transporting gasoline to each destination is MC = 2. The pipeline has a fixed cost of 160. The demand curve for the transportation of gasoline from A to R is QR = 100 – 10PR, where QR is the number of units transported when PR is the transport price per unit. The demand for pipeline movements from A to T will be 20 units as long as If the customers at T will purchase gasoline from another source, buying no gasoline shipped through the pipeline. These demand curves are shown below.
a) If this firm were unable to engage in price discrimination (so that it can only choose a single P for the two markets), what would the profit-maximizing tariff be? What level of profit would the firm realize?
b) If this firm were able to implement third-degree price discrimination to maximize profits, what would the profit-maximizing prices be? What level of profits would the firm realize?
a) Under the assumption that there is a positive demand from each type of traveler, what is the equation of the overall market demand curve facing the resort?
b) What is the profit-maximizing price under the assumption that the resort must set a uniform price for all travelers? For the purpose of this problem, you may assume that at the profit-maximizing price, both types of travelers are served. Under the uniform price, what fraction of customers are bargain travelers, and what fraction are high end?
c) Suppose that the resort can engage in third-degree price discrimination based on whether a traveler is a high-end traveler or a bargain traveler. What is the profit-maximizing price in each segment? Under price discrimination, what fraction of customers are bargain travelers and what fraction are high end?
d) The management of La Durazno is probably unable to determine, just from looking at a customer, whether he or she is a high-end or bargain traveler. How might La Durazno screen its customers so that it can charge the profit-maximizing discriminatory prices you derived in part (c)