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Homework answers / question archive / College students have a reservation price of $14 for movie tickets
College students have a reservation price of $14 for movie tickets. Senior citizens have a reservation price of $12. If the price of a movie ticket is $12 or less, then 20 senior citizens will demand a ticket. However, no senior citizens will demar a ticket at prices above $12. If the price of a movie ticket is $14 or less, then 25 college students will demand a ticket. However, no college students will demand a ticket at prices above $14. Given the information in the table, if a movie theater does not price discriminate, then it charges either the highest price the college students are willing to pay or the one that the senior citizens are willing to pay. Why doesn't it charge an intermediate price? (Hint: Discuss how the demand curves of these two groups are unusual). The theater would practice price discrimination by charging college students $14 and senior citizens $12. Uniform, $12 Uniform, $14 Price Discrimination Profit from 25 College Students $300 $350 $350 Profit from 20 Senior Citizens $240 $0 $240 Total Profit $540 $350 $590 When not price discriminating, the firm does not charge an intermediate price (e.g., a price between $12 and $14) because at prices above $12 and below $14 A. demand is price sensitive in this price range. B. demand is zero in this price range. C. demand is perfectly inelastic in this price range. D. demand is infinite in this price range. E. demand is kinked in this price range.
According to the given information, if a movie theater charges $12, both senior citizens and students will demand a movie ticket. If the price is $14, senior citizens will not buy a movie ticket. At price discrimination, Movie Theater can charge $12 from senior citizens and $14 from students. The movie theater does not charge the intermediate price between 12 to 14 because between this price range, demand is inelastic, and all the 25 college students will buy the movie ticket between 12 to 14 due to which movie theater can get the maximum benefit from the transaction and charges $14 from all the 25 students to earn maximum. Hence, the correct option is; C. demand is perfectly inelastic in this price range.
