The managers of Movies Plus, a large movie theater, want to practice third- degree price discrimination. The managers have learned that college students have an own price elasticity of demand of 4.0 for tickets at Movies Plus and adults have an own price elasticity of 2.0. If the managers have correctly determined the third- degree profit- maximizing price for adults is $10, what is the third- degree profit- maximizing price to charge students?
A)$12.00
B)$5.50
C)$15.00
D)$6.67

Question

Quizplus · Accepted Answer

Given the price elasticity of demand for adults is 2.0 and the optimal price is $10, and the price elasticity for students is 4.0, the optimal price for students should be lower due to their higher elasticity. The formula for third-degree price discrimination suggests that the ratio of prices should inversely reflect the ratio of elasticities. Therefore, since students are twice as price-sensitive as adults, they should be charged half the price, which is $5. However, since none of the options exactly match this calculation, the closest option provided is $6.67.

The Managers of Movies Plus, a Large Movie Theater, Want