You are the only pharmacist in a small town; the next closest drugstore is 50
miles away. The population in your town consists of young farmers and older retired
families. You have noticed that the young farmers are less sensitive to price changes
than the retired population. Specifically, you have found that the working population
has an own price elasticity of demand of -1.5 and the retired farmers have an own
price elasticity of -3. Suppose that the marginal cost of supplying the two markets is
the same and equal to a constant, MC.
a. (2 pts) Are the conditions necessary for price discrimination to be an effective
means of enhancing profits being met? Explain.
b. (4 pts) What is the profit-maximizing price to charge the working farmers?
c. (4 pts) What is the profit-maximizing price to charge retired farmers?