Figure 16-2

Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers:
students and the non-student population.
Figure 16-2 shows the demand curves for the two groups of customers.
-Refer to Figure 16-2.Suppose Plato Playhouse price discriminates.Which of the following statements is true?
A)By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby increasing economic efficiency.
B)By charging two different prices, the theatre company essentially allows those willing to pay higher prices to subsidize those who are not.
C)By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby improving equity.
D)Plato Playhouse will earn higher profits if it charges a single price-an average of the two prices- instead of charging two different prices to the two different groups of customers.

Question

Figure 16-2
  
Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers:
students and the non-student population.
Figure 16-2 shows the demand curves for the two groups of customers.
-Refer to Figure 16-2.Suppose Plato Playhouse price discriminates.Which of the following statements is true?
A)By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby increasing economic efficiency. 
B)By charging two different prices, the theatre company essentially allows those willing to pay higher prices to subsidize those who are not. 
C)By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby improving equity. 
D)Plato Playhouse will earn higher profits if it charges a single price-an average of the two prices- instead of charging two different prices to the two different groups of customers.

Quizplus · Accepted Answer

By charging two different prices, the theatre company essentially allows those willing to pay higher prices to subsidize those who are not. This results in increased profits for the company and also serves to improve equity by making the service more affordable for those who cannot pay higher prices. Charging a single price would result in lower profits for the company.

Figure 16-2 Plato Playhouse, a Theatre Company in the University Town of in the University