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Third degree price discrimination - senior citizen Vs. rest

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A movie theater has estimated that the demand for a movie ticket can be written as P1 = 10 - Q1 for senior citizens and P2 = 12 - Q2 for the rest of the customers. The marginal cost of a movie ticket is $1. If the movie theater practices third-degree price discrimination, what prices will be charged?

A. Senior citizens pay $5.5; everyone else pays $6.5.
B. Senior citizens pay $6.5; everyone else pays $7.5.
C. Senior citizens get in for free; everyone else pays $10.
D. Everyone pays $8.

Definition of 3rd Party Price Discrimination: "Third-degree price discrimination is the practice of dividing customers into groups with separate demands and charging different prices to each group."

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This problem illustrates how the third degree price discrimination strategy works.

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We fix separately optimize the profitability for the two market segments. The rule for optimization ...

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