Question: Suppose that you work for a national cell phone company. After conducting a survey of potential users, you have determined that your cell phone customers can be classified as either “casual” or “heavy” users. The numbers of casual and heavy users are equal. Your survey reveals that that casual and heavy cell phone users place the following values on your two different calling plans:

Assuming that the marginal cost of providing cell phone service is zero, calculate optimal prices and profits under each of the following pricing strategies:

a. Sell only to heavy cell phone users

b. Sell to all users at a single low price

c. Sell to both groups using price discrimination (this is indirect price discrimination)

d. Which of these three strategies yields the most profit for the cell phone provider?