Question

Suppose your friend is a music major who sings at weddings. She has no fixed or marginal costs for singing and has two types of customers: 20 customers think it is worth paying $200 to have her sing at their wedding, whereas 10 customers think her singing services are worth only $100. Il earn S if she can charge only one price to:________.
(a) If your friend is able to sing at each wedding and maximizes profits all customers.
(b) She will earn S If she can perfectly price discriminate.

Answer 1

Answer: a. $4,000

b. $5,000

Explanation:

a. If she can sing at each wedding but decides to maximise profits, she will only sing at the weddings of those paying her $200 as it is the higher of the two payment options.

Should she sing at the $200 customer weddings, she would make;

= 20 people * $200

= $4,000

b. Price Discrimination is the charging of different types of customers different prices for the same or similar goods.

If your friend knows how to perfectly charge the two different groups the different prices that they value her at then she will be able to attend and sing at both weddings making her revenue;

= (10* $100) + (20 * $200)

= 1,000 + 4,000

= $5,000