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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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    Solution Preview

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

    Solution Summary

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