(Figure: Type A and Type B I) Suppose a firm plans to use indirect price discrimination through quantity discounts. The firm cannot identify which customers are Type A or Type B before the purchase, so the firm would like to offer a regular-price plan and a quantity discount plan to suit the customers' personal price sensitivity.

a. Which customer type is more price-sensitive?
b. What price should the firm set for the less price-sensitive customers?
c. What price should the firm set for the discount plan? What is the minimum number of units the customer should have to buy to get the quantity discount?
d. From your answer to part b, how many units will the customers who are more price-sensitive buy at this price?
e. Will the less price-sensitive customers self-select into the regular-price plan as intended by the firm, or will they take advantage of the quantity discount?

Question

(Figure: Type A and Type B I) Suppose a firm plans to use indirect price discrimination through quantity discounts. The firm cannot identify which customers are Type A or Type B before the purchase, so the firm would like to offer a regular-price plan and a quantity discount plan to suit the customers' personal price sensitivity.  
  
a. Which customer type is more price-sensitive?
b. What price should the firm set for the less price-sensitive customers?
c. What price should the firm set for the discount plan? What is the minimum number of units the customer should have to buy to get the quantity discount?
d. From your answer to part b, how many units will the customers who are more price-sensitive buy at this price?
e. Will the less price-sensitive customers self-select into the regular-price plan as intended by the firm, or will they take advantage of the quantity discount?

Quizplus · Accepted Answer

The Answer of (Figure: Type A and Type B I) Suppose a firm plans to use indirect price discrimination through quantity discounts. The firm cannot identify which customers are Type A or Type B before the purchase, so the firm would like to offer a regular-price plan and a quantity discount plan to suit the customers' personal price sensitivity.  
  
a. Which customer type is more price-sensitive?
b. What price should the firm set for the less price-sensitive customers?
c. What price should the firm set for the discount plan? What is the minimum number of units the customer should have to buy to get the quantity discount?
d. From your answer to part b, how many units will the customers who are more price-sensitive buy at this price?
e. Will the less price-sensitive customers self-select into the regular-price plan as intended by the firm, or will they take advantage of the quantity discount?

(Figure: Type a and Type B I) Suppose a Firm