Value of each demands elasticity at optimal price level

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Reference no: EM13981960

I'm confused how to figure out optimal price when marginal cost is 0 like in the following problem:

A local tailor has two types of customers, private customers and department stores. The market of private customers has a demand given by Qp = 2000–100P, and the market of department stores has a demand given by Qs = 4000 − 100P. The marginal cost of one more alteration is constant and equal to zero.

(a) Suppose that the tailor can charge different prices to each type of customer. What are the optimal prices? What is the total profit?

(b) What is the value of each demand’s elasticity at the optimal price level?

(d) Suppose that a regulation prohibits price discrimination. What is the optimal (uniform) price? How much does the regulation cost the tailor in terms of forgone profits? What happens to consumer surplus?

Reference no: EM13981960

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