Coach Industries, Inc., is a leading manufacturer of recreational vehicle products. Its products include travel trailers, fifth-wheel trailers (towed behind pick-up trucks), and van campers, as well as parts and accessories. Coach offers its fifth-wheel trailers to both dealers (wholesale) and retail customers. Ernie Pantusso, Coach’s controller, estimates that each fifth-wheel trailer costs the company $10,000 in variable labor and material expenses. Demand and marginal revenue relations for fifth-wheel trailers are
PW = $15,000 - $5QW (Wholesale),
MRW = ∂TRW/∂QW = $15,000 - $10QW.
PR = $50,000 - $20QR (Retail),
MRR = ∂TRR/∂QR = $50,000 - $40QR.
A. Assuming that the company can price discriminate between its two types of customers, calculate the profit-maximizing price, output, and profit contribution levels.
B. Calculate point price elasticity for each customer type at the activity levels identified in part A. Are the differences in these elasticity consistent with your recommended price differences in part A? Why or why not?