Price Discrimination Bruce Runs Bar Town Individual Consumer S Demand Bar Drinks Q P 10 P Q29139462

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Price Discrimination. Bruce runs the only bar in town. An individual consumer’s demand for bar drinks is Q(P) 10 – P. The bar’s marginal cost is $2 per drink. (Where possible, graphical answers are encouraged.) a. [5 points] Compute the profit-maximizing quantity, price and profit from serving a single consumer if Bruce charges only a constant price per drink, P, rather than using some nonlinear pricing scheme What would the price, quantity and profit be in the bar serves N consumers identical to this on a typical night? [5 points] Suppose Bruce switches to a pricing scheme involving an admission fee, e, to enter the bar, as well as a per-drink fee, P, (I.e., a two-part tariff). H profit would it earn from using this two-part scheme on a typical night when there are N consumers? ow many drinks would the bar sell and how much c. [15 points] Now suppose that, in addition to the original N consumers mentioned above, an additional M appear whose demand for drinks is less than that of the original consumers. Each of the new consumers has demand q(P)-5- P. Explain the basic structure of the optimal two-part tariff given this aggregate demand, using th variant of the Lerner pricing formula we discussed in class. Discuss both the case when N is very large relative to M and the case where N is small. Show transcribed image text