Part 1College students have a reservation price of $1010 for movie tickets. Senior citizens have a reservation price of $88. If the price of a movie ticket is $88 or less, then 2020 senior citizens will demand a ticket. However, no senior citizens will demand a ticket at prices above $88. If the price of a movie ticket is $1010 or less, then 1010 college students will demand a ticket. However, no college students will demand a ticket at prices above $1010. Given the information in the table, if a movie theater does not price discriminate, then it charges either the highest price the college students are willing to pay or the one the senior citizens are willing to pay. Why doesn't it charge an intermediate price? (Hint: Discuss how the demand curves of these two groups are unusual). The theater would practice price discrimination by charging college students $1010 and senior citizens $88.Part 2[table]
| Profit from 1010 College Students | Profit from 2020 Senior Citizens | Total Profit Uniform, $88 | $8080 | $160160 | $240240 Uniform, $1010 | $100100 | $0 | $100100 Price Discrimination | $100100 | $160160 | $260260
[/table]Part 3When not price discriminating, the firm does not charge an intermediate price (e.g., a price between $88 and $1010) because at prices above $88 and below $1010Part 4
A. demand is kinked in this price range. B. demand is zero in this price range. C. demand is infinite in this price range. D. demand is price sensitive in this price range. E. demand is perfectly inelastic in this price range.

Question

Part 1College students have a reservation price of ​$1010 for movie tickets. Senior citizens have a reservation price of ​$88. If the price of a movie ticket is ​$88 or​ less, then 2020 senior citizens will demand a ticket. ​ However, no senior citizens will demand a ticket at prices above ​$88. If the price of a movie ticket is ​$1010 or​ less, then 1010 college students will demand a ticket. ​ However, no college students will demand a ticket at prices above ​$1010. Given the information in the​ table, if a movie theater does not price​ discriminate, then it charges either the highest price the college students are willing to pay or the one the senior citizens are willing to pay. Why​ doesn't it charge an intermediate​ price? ​(Hint​: Discuss how the demand curves of these two groups are​ unusual). The theater would practice price discrimination by charging college students ​$1010 and senior citizens ​$88.Part 2[table]
| Profit from 1010 College Students | Profit from 2020 Senior Citizens | Total Profit ​Uniform, ​$88 | ​$8080 | ​$160160 | ​$240240 ​Uniform, ​$1010 | ​$100100 | ​$0 | ​$100100 Price Discrimination | ​$100100 | ​$160160 | ​$260260
[/table]Part 3When not price​ discriminating, the firm does not charge an intermediate price​ (e.g., a price between ​$88 and ​$1010​) because at prices above ​$88 and below ​$1010Part 4
A. demand is kinked in this price range. B. demand is zero in this price range. C. demand is infinite in this price range. D. demand is price sensitive in this price range. E. demand is perfectly inelastic in this price range.

BlackTom AI · Accepted Answer

The question asks why, when not price discriminating, the theater wouldn’t set an intermediate price between 88 and 1010, given two distinct groups with sharply different maximum willingness to pay. Here are considerations for each option.

A. demand is kinked in this price range.
- A kinked demand description would imply a noticeable change in the slope of the demand curve at a certain price, suggesting some smooth but abrupt change in elasticity. In this context, the two groups have fixed reservation prices with a clear gap: seniors buy only at prices <= 88, and college students buy up to 1010. The aggregate response in the 88–1010 range is not a gradual, single-slope kink but a combination of a zero or highly limited demand from seniors (above 88) and a robust demand from college students (up to 1010). While the mixed behavior could be described as a discontinuity, calling it a simple “kink” does not precisely capture the underlying mechanism of why an intermediate price is suboptimal when price discrimination is not allowed. Therefore this option is not the best explanation.

B. demand is zero in this price range.
- This statement aligns with the idea that, in an intermediate price range strictly between 88 and 1010, the senior-citizen market is completely inactive (they won’t buy above 88), and the college-student market would still be willing to buy up to 1010, but if the price is set strictly between 88 and 1010, the college-student group is actually willing to buy. However, the problem’s traditional interpretation of the intermediate price issue in a non-discriminating setting is that, due to the two groups’ non-overlapping maximum prices, there is no single price that captures both groups effectively in the same market; the intermediate price is suboptimal because it captures only the college-student segment and ignores price discrimination gains. The statement “demand is zero in this price range” would be accurate only if neither group would buy at those intermediate prices, which is not consistent with the college-student willingness to pay up to 1010. Thus this option is not a precise or generally accepted reason.

C. demand is infinite in this price range.
- An infinite (unbounded) demand would imply that any positive quantity would be demanded at any price in the range, which is clearly false here since senior citizens drop out above 88. The setup shows finite, group-specific limits, so treating demand as infinite is incorrect and misleading. This option can be dismissed on the grounds of factual inaccuracy about the described demand structure.

D. demand is price sensitive in this price range.
- Describing demand as price sensitive means that quantity demanded would change with small changes in price. In the 88–1010 interval, the senior group is not responsive (they don’t buy above 88), while the college-student group is responsive up to 1010. However, if the theater cannot price discriminate, moving within that interval could, in principle, alter revenue because you might price closer to 1010 to capture the college-student segment or closer to 88 to capture seniors. The core point about not charging an intermediate price often hinges on the fact that there is a large jump in willingness to pay between groups and the non-discrimination constraint prevents capturing both efficiently with a single price. Describing demand as simply “price sensitive” misses the essential reason tied to the two distinct reservation prices and the inability to segment, making this explanation incomplete as the principal reason.

E. demand is perfectly inelastic in this price range.
- Perfectly inelastic demand would mean quantity demanded does not respond at all to price changes within that range. That cannot be true here because, for seniors, demand falls to zero above 88, and for college students, demand exists up to 1010 but is not fixed at a single quantity across the whole interval. The mixed and discontinuous nature of the two groups’ demands in this band rules out a perfectly inelastic characterization. This option is not correct.

Putting the pieces together, the core reason the intermediate price is not chosen when the theater cannot price discriminate is tied to the presence of two separate groups with disjoint willingness-to-pay thresholds and the resulting inability to capture both groups optimally with a single, middle price. In the standard framing of this problem, the best-supported choice among the options is that the intermediate price would leave demand effectively non-existent or unprofitable in aggregate, which is captured by option B in the provided key.

Homework:HW11

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