Answer to Question #83069 in Microeconomics for sahil tomar

Question

Suppose a price-discriminating hotel faces two types of consumers: high and low. Suppose 50% of consumers are of each type.
Each consumer wants at most one hotel room. A room can come in three qualities: Royal, Aristocratic, and Working
Class. The consumers' dollar valuations for each kind of room are given below:
Type # Quality Royal Aristocratic Working
High $2000 $1000 $500
Low $500 $400 $300
Suppose the hotel wishes to maximize total revenues (i.e., marginal production costs are zero). In addition, suppose
the hotel cannot distinguish one type of consumer from the other, and therefore consumers must self-select into
the option intended for each one. (Note: the hotel is not forced to sell a room to every consumer). Which room and price is offered to each type of consumer?

Answer 1

Type Royal Aristocratic Working

High $2000 $1000 $500

Low $500 $400 $300

If the hotel wishes to maximize total revenues (i.e., marginal production costs are zero) and cannot distinguish one type of consumer from the other, then the highest possible price and quality is offered to each type of consumer, so Royal rooms will be offered for high quality price of $2000.