A hotel serves both business and vacation travelers and wishes to price-discriminate. The hotel manager can accurately identify and separate sub markets by looking for children when travelers check in to the hotel. If travelers have no children, they must pay the ?business? price; if they have one or more children with them, they pay the ?vacation? price. In the following figure, D_B is the demand by business travelers and D_V is the demand by vacation travelers. The hotel?s marginal and average costs are constant and equal to $20 per unit.a. Construct the total marginal revenue curve in the figure and label it MRT.b. What is the profit-maximizing number of business travelers to serve? Vacationers?c. What price should be charged to each type of traveler? How much revenue is collected from each type of traveler?d. Calculate the price elasticities at the prices charged in each sub market. Do these price elasticities have the expected relative magnitudes? Explain.e. How much profit does the price-discriminating hotel earn?

f. If the hotel charged a uniform price to all travelers, what price would it be? How much revenue would the hotel collect? How much profit would it make?g. Is price discrimination more or less profitable than uniform pricing?

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80 70 60 50 40 MR3 30 LMC = LAC MRy Dy DB 10 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 Quantity Price and cost (dollars) 20