A psychiatrist is contemplating to set different prices for two different groups of clients: males (M) and females (F). The marginal cost MC of providing counselling sessions is given by
MC = 5 + 0.002Q,
where Q is quantity of sessions provided. The demand functions of males and females are respectively:
QM = 500 – 25PM,
QF = 900 – 30PF,
where subscript M represents male, subscript F represents female, QM is quantity demanded by males, QF is quantity demanded by females, PM is price charged to males, and PF is price charged to females.
(a) Suppose the male and female markets can be segregated. Compare the steps in solving the two prices PM and PF. Solve PM and PF.
(b) Based on your answers in (a), analyze if PM > PF or PM < PF.
(c) Suppose the psychiatrist cannot price discriminate male and female clients. Only a single price is set. Locate the profit in this situation, and indicate if it is higher or lower than that in (a).
MC = 5 + 0.002Q,
where Q is quantity of sessions provided. The demand functions of males and females are respectively:
QM = 500 – 25PM,
QF = 900 – 30PF,
where subscript M represents male, subscript F represents female, QM is quantity demanded by males, QF is quantity demanded by females, PM is price charged to males, and PF is price charged to females.
(a) Suppose the male and female markets can be segregated. Compare the steps in solving the two prices PM and PF. Solve PM and PF.
(b) Based on your answers in (a), analyze if PM > PF or PM < PF.
(c) Suppose the psychiatrist cannot price discriminate male and female clients. Only a single price is set. Locate the profit in this situation, and indicate if it is higher or lower than that in (a).