4. Price Discrimination You are a manager for a ski resort located in northern Idaho. Your boss has oorne to you
1with new market research data that indicates that your marl-Let demand function can be broken into two individual demand functions: the demand for people from Idaho, and the
demand for people from the rest of the 1world. The inverse demand functions are as follows: Idaho: p=fi—%q NotIdaho: p=E|—q
[bytheway,ifyou aggregatedthcoe inversedemand fimctions,youwouldobtainp=9—q ifporfiandp=T—quf,o<_:fi:l. Youalsolmowthatthetotalandmarginalcostflmctions
fortheresortare TC H
U1
+ nfi
+
I MC ||
|_|.
+ I
u: a} Plot the inverse demand curves for both Idaho residents and non-Idaho readdenis. fin
the same figure, include both marginal revenue curves as well as the supply curve. Label all
cmyes. b} Assume that you can only charge one price for admission to the ski resort. What are the
equilibrium price, quantity and profits if the ski resort acts as a monopolist? c] How, amume that you can prioe discriminate. 'What are the equilibrium price and
quantity charged to each group? [These answers will not be integers] d} Dothepricesinpart {c} mahesense'i' Whywouldtheprice foronegrouphelowerthan
the price for the other group? e] 'What kind of price discrimination is this? l[Tan you, as the manager, present arbitrage
{reside} in this case? If so, how? Why is it important to present arbitrage in price discrimi-
nation?

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