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A theme park is interested in maximizing its profits The marginal cost is equal to $2. The estimated demand for the two groups who attend the amusement park: The (inverse) demand for kids is: P = 10 - Q The (inverse) demand for adults is: P = 6 - Q
a. What is the optimal bundle (entrance fee plus the number of rides) that can be charged if Joe can first-degree price discriminate? Explain and provide a graph.
b. By how much are the profits increased from third-degree price discrimination where he can only charge a price per ride to each group? Explain and provide a graph.
Now suppose that the park cannot distinguish between the two groups, and therefore has to set the price of the bundles in a way that makes each group buy the bundle that they would like visitors to buy (second-degree price discrimination).
c. What is the bundle that should be sold to kids (high-demand group) if the park can second-degree price discriminate and is selling adults a bundle that includes 4 rides?
d. How much can the park charge for the high-demand bundle if they change the bundle offered to the low-demand group so that it includes three rides instead of four?
Please help with part c and d.
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