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Consolidated Salt Company sells table salt to both retail grocery chains and commercial users (e.g., bakeries, snack food makers, etc). The demand function for each of these markets is:
Retail Grocery Chains: P1 = 180 - 8 Q1
Commercial Users: P2= 100 - 4 Q2
where P1 and P2 are the prices charged and Q1 and Q2 are the quantities sold in the respective markets. Consolidated Salt Company's total cost function for salt is:
TC = 50 +20 (Q1 + Q2)
or MC = 20
1) If Consolidated Salt Company charge the same price in each market, what is the profit maximizing price? What are the total profits? 2 points
2) If we assume that Consolidated Salt Company is effectively able to charge different prices in the two markets, what is the profit maximizing price and profit in each market? 3 points
3) Evaluate the prices from uniform pricing to the prices from price discrimination. Which pricing strategy is better? Why?
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