Reference no: EM131654473

Question: A movie cinema has identified two groups of customers in the market: students and adults. To gain a concession students just have to show their student card when buying a ticket. Each ticket costs the cinema $4 regardless of whether it is to a student or an adult. Use the following two tables to answer each part of the question below:

Adult Buyers Students - Concession Buyers

Price Quantity Price Quantity

20 2 12 1

18 4 10 2

16 6 8 3

14 8 6 4

12 10 4 5

10 12 2 6

8 14

6 16

4 18

2 20

a) Explain what direct price discrimination is.

b) What is the effect on producer surplus, and consumer surplus from the practice of price discrimination?

c) What prices will the cinema charge to maximise profit for adults and students each?

d) Calculate the consumer surplus to adults and students separately when the business uses price discrimination.

e) Calculate the consumer surplus when the business does NOT use price discrimination (Hint: combine the demand curves from both high and low value customers)