Figure 16-3

Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement community, labeled Market A, and other residents in the neighborhood, labeled Market B. The demand curves are not identical.
-Refer to Figure 16-3.Suppose the salon price discriminates.What prices are charged in the two markets?

Question

Figure 16-3
  
Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement community, labeled Market A, and other residents in the neighborhood, labeled Market B. The demand curves are not identical.
-Refer to Figure 16-3.Suppose the salon price discriminates.What prices are charged in the two markets?

Quizplus · Accepted Answer

Price discrimination involves charging different prices to different groups of customers. In order to maximize profits, the salon should charge each market a price that maximizes that market's willingness to pay. From the demand curves in Figure 16-3, we can see that the retirement community has a lower willingness to pay than the neighborhood residents. Therefore, the salon should charge a lower price to the retirement community than to the neighborhood residents. Option B is the best choice because it reflects this price discrimination strategy, with a lower price of $10 charged to Market A (retirement community) and a higher price of $15 charged to Market B (neighborhood residents).

Figure 16-3 Chantal Owns a Hairdressing Salon Which Caters to Two Main