39. In class we’ve discussed the fact that the baseline models we’ve constructed can be extended to incorporate more advanced techniques. Let’s look at a

39. In class we’ve discussed the fact that the baseline models we’ve constructed can be extended to incorporate more advanced techniques. Let’s look at a specific extension that incorporates the
mncept of price discrimination. In particular, assume that a firm with constant marginal costs of $2 has two types of customers. The first type has a market demand of 101(1)) = 20 — p . The second
type is more price-sensitive and has a market demand of .1")2 (p) = 18 — p . :1. Assume the firm can only set a single price. For instance, when an individual shows up to
purchase a good the firm cannot determine which type of consumer she is. 1 is the maximal profit the firm can achieve? nt: This is pretty much a standard market power
model where you need to solve for the market demand, profitvmaximize, then determine if the firm would sell to each customer type. 13. Now assume the firm can set a different price in each market. For instance, the firm can offer senior citizen discounts. If the firm profit—maximizes in market 1 and also profitwmaximizes in market 2, what prices will it set in each market? c. How much extra profit will the firm receive by price-discriminating in this manner?