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Problem 3: Price Discrimination (40 points)

An amusement park, whose customer set is made up of two markets, adults and children, has developed demand schedules as follows:

Price ($) Quantity
Adults Children
5 15 20
6 14 18
7 13 16
8 12 14
9 11 12
10 10 10
11 9 8
12 8 6
13 7 4
14 6 2

The marginal operating cost of each unit of quantity is $5. Because marginal cost is a constant, so is average variable cost. Ignore fixed costs. The owners of the amusement part want to maximize profits.
Calculate the price, quantity, and profit if:

  1. The amusement park charges a different price in each market.
  2. The amusement park charges the same price in the two markets combined.
  3. Explain the difference in the profit realized under the two situations.
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