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2. Recessions and price discrimination Suppose that you are the marketing manager of Citruscity, the only producer of tangelos in the imaginary economy of Blockburg. As a monopolist, Citruscity’s objective is to maximize its profit, so it is up to you devise a way to increase profits through price discrimination. As a former economics student, you know that many firms successfully practice price discrimination by separating their market into two identifiable types of consumers—what economists call third-degree price discrimination. Examples of this include student discounts, senior citizen discounts, and ladies’ night discounts. After doing some research, you conclude that the demand for tangelos varies greatly between consumers who clip coupons and those who do not. The following graphs show the overall daily demand and marginal revenue (MR ) for a pound of tangelos for each group of consumers and the marginal cost (MC ) for producing a pound of tangelos. Assume that fixed costs are equal to zero. Note: You will not be graded on any changes made to these graphs. Coupon Clippers Profit Max 0 10 20 30 40 50 60 70 80 90 100 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 PRICE (Dollars per pound of tangelos) QUANTITY (Pounds of tangelos per day) Demand MR MC Non-Coupon Clippers Profit Max 0 10 20 30 40 50 60 70 80 90 100 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 PRICE (Dollars per pound of tangelos) QUANTITY (Pounds of tangelos per day) Demand MR MC Complete the following table by computing the profit-maximizing price and quantity for each consumer type using the ungraded elements on the previous graphs. Consumer Type Price Quantity (Dollars per pound of tangelos) (Pounds of tangelos) Coupon Clippers Non-Coupon Clippers Based on this information, you would suggest that the coupon value for tangelos should be $ per pound. Overall profit for Citruscity will now be $ per day if it uses this coupon value to price discriminate its customers. Suppose the economy of Blockburg has entered a recession that changes the composition of consumers as shown on the following graphs. That is, some consumers who were formerly non-coupon clippers have now become coupon clippers, and the overall willingness of coupon clippers to pay has declined. Note: You will not be graded on any changes made to these graphs. Coupon Clippers Profit Max 0 10 20 30 40 50 60 70 80 90 100 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 PRICE (Dollars per pound of tangelos) QUANTITY (Pounds of tangelos per day) Demand MR MC Non-Coupon Clippers Profit Max 0 10 20 30 40 50 60 70 80 90 100 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 PRICE (Dollars per pound of tangelos) QUANTITY (Pounds of tangelos per day) Demand MR MC Complete the following table by computing the profit-maximizing price and quantity for each consumer type during the recessionary period. Consumer Type Price Quantity (Dollars per pound of tangelos) (Pounds of tangelos) Coupon Clippers Non-Coupo

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