Question: Assume the In-n-Out restaurant has marginal cost, MC=5. Assume it has no fixed cost, so its Total cost is 5q. Assume that the firm faces two types of consumers. The first group of consumers, Trojan University graduates, has demand Q=150-3P/2. The second type of consumers, Westwood University graduates, has demand Q=50-P/2.

a) Suppose that firm can not differentiate the two groups of consumers, and it charges a single price to all consumers. What is the aggregate demand function? What is the optimal price and quantity? What is the profit of the firm? What is the consumer surplus of each group of consumers?

b) Suppose now the firm decides to use two-part tariff. But it hires a Westwood University Alumnus, who recommends the optimal price, is the monopoly price. Given that the firm charges the monopoly price in part b), what is the optimal tariff? If the owner of the restaurant only wants to sell to Trojan University graduates, what is the optimal tariff?

c) Now suppose the restaurant can differentiate the two groups of customers and it uses third- Degree price discrimination. What are the optimal prices? What is the profit and what is the Consumer surplus to each group of consumers?