Question

If you’re like some college students, you are always worried about having enough money. Suppose that you decide to become an Uber driver, and you offer rides to students on weekends. For a fee, you will drive them to parties and pick them up at the end of the night. Your marginal cost per ride is $10. To keep things simple, assume you are the only person in your town providing this service; that is, you’re a monopolist. On any given weekend, there are six customers who want a ride—three men and three women. The table below shows the most each person is willing to pay for a ride.

Customer	Maximum willingness to pay
John	70
Mary	60
Peter	50
Kristine	40
Paul	30
Samantha	20

Part 1) If you could charge only a single price, you would earn   $------ in profit.

Part 2) Suppose you could charge men and women different prices. The tables below show each group's demand.

Customer	Maximum willingness to pay
John	$70
Peter	50
Paul	30

Customer	Maximum willingness to pay
Mary	$60
Kristine	40
Samantha	20

If you charge men one price and women another price, you would earn   $------ in profit.

Part 3 : How much profit would you earn if you practice perfect price discrimination?   $ -------

Answer 1

Let us assume that there is no fixed cost, i.e. FC = 0.

Now, let us calculate profit at different prices as under:

Price	Quantity	Total Revenue	Marginal cost per ride	Total Cost	Profit
$20.00	6	$120.00	$10.00	$60.00	$60.00
$30.00	5	$150.00	$10.00	$50.00	$100.00
$40.00	4	$160.00	$10.00	$40.00	$120.00
$50.00	3	$150.00	$10.00	$30.00	$120.00
$60.00	2	$120.00	$10.00	$20.00	$100.00
$70.00	1	$70.00	$10.00	$10.00	$60.00

Workings:

Theory used:
At a price of 20 all six of them will take rides.
At a price of 30, except samantha rest all others will take rides.
At a price of 40, except samantha & paul, rest all others will take rides.
At a price of 50, except samantha, paul & kristine, rest all others will take rides.
At a price of 60, except samantha, paul & kristine & peter, rest all others will take rides.
At a price of 70, only John will take ride.

Part 1) If you could charge only a single price, you would earn $120 in profit.
Reason: From the data in the table we can see that if you charge price of $40 or $50, you can earn maximum profit of $120.

Part 2) Suppose you could charge men and women different prices. If you charge men one price and women another price, you would earn $140 in profit.

Now lets apply the same theory as used above, we can see the data as under:

For Men:
Price	Quantity	Total Revenue	Marginal cost per ride	Total Cost	Profit
$30.00	3	$90.00	$10.00	$30.00	$60.00
$50.00	2	$100.00	$10.00	$20.00	$80.00
$70.00	1	$70.00	$10.00	$10.00	$60.00

So, if you charge $50 from men you will earn a maximum profit of $80.

For Women:
Price	Quantity	Total Revenue	Marginal cost per ride	Total Cost	Profit
$20.00	3	$60.00	$10.00	$30.00	$30.00
$40.00	2	$80.00	$10.00	$20.00	$60.00
$60.00	1	$60.00	$10.00	$10.00	$50.00

So, if you charge $40 from women you will earn a maximum profit of $60.
Thus, your total profit = $80 + $60 = $140.

Part 3 : How much profit would you earn if you practice perfect price discrimination? $210.

If you practice perfect price discrimination, then you would charge each person there respective maximum willingness to pay for the rides. Thus, as given in the table, you would charge : John-70, Mary- 60, Peter- 50, Kristine- 40, Paul- 30, Samantha- 20.
Hence, your total revenue will be = 70+60+50+40+30+20 = $270.
Total cost will be = 6*10 = $60.
Total profit will be = $270 - $60 = $210.