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    Calculating the profit maximizing price levels

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    The Yankees have determined that there are three groups of buyers for their tickets. They have determined that the price elasticity of demand for group one is -1.02, for group two is -1.4, and for group three -2.1. The Yankees also know their marginal cost per ticket is $10. The Yankees want to practice price discrimination to maximize their profits. Determine the profit maximizing price that should be charged to each group of buyers

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    Solution Preview

    Marginal Cost=MC=$10

    Price elasticity of demand for group 1=Ep=-1.02
    Optimal Price for group 1= (Ep/(1 + Ep))* MC
    ...

    Solution Summary

    Solution determines the profit maximizing price that should be charged to each group of buyers in consideration.

    $2.19