Answer Happy

You are the only pharmacist in a small town. The population in your town consists of young farmers and older retired families. You have noticed that the young farmers are less sensitive to price changes than the retired population. Specifically, you have found that the working population has an own price elasticity of demand of -2, while the retired families have an own price elasticity of -4. a. Given this situation, and assuming that you can charge different prices to different groups based on age (by checking their driver's license when they purchase), who should pay the higher price? Explain. b. Suppose that you are charging $12 to the young farmers. Using his fancy economic theories and some data, an economist has confirmed that this is the optimal price to be charging. What price should you charge the older retired families? Show your work and explain. (Note: there is a correct, exact dollar amount based on what you have learned in this course. Find it!) c. The group paying the higher price may be upset that the other group gets to pay less. What data could you use to convince them that they should not be upset and that they are no worse off as a result of your price discrimination? Explain.