The Tire Shed is a regional chain that sells tires and other automobile parts. The company sells its own brand of tires under a block pricing scheme that charges $100 per tire if the customer buys one or two tires and $75 per tire if the customer buys three or four tires. The monthly demand curve facing the typical store is Q = 1000 - 4P, and the marginal cost of the tires is constant at $40 per tire.
a. What are the monthly profits for the typical store under the block pricing scheme? What is the consumer surplus enjoyed by customers of the typical store?
b. Suppose the firm is considering a uniform pricing scheme with P = $90 per tire. How does the firm profit and consumer surplus under uniform pricing compare to the profit and consumer surplus outcomes under block pricing?

a.The firm sells Q1 = 1000 - 4(100) = 600 tires at the high price (P1 = 100), and the firm's profit from the first block is 600(100 - 40) = $36,000. The demand curve may be stated in price-dependent form as P = 250 - 0.25Q, and the consumer surplus under the first block is At the lower price, Q2 = 1000 - 4(75) = 700 (i.e., the typical Tire Shed sells 100 tires per month under the second block), the firm's profit under this block is and the total profit is $39,500 per month. The consumer surplus under the second block is CS2 = 100(100 - 75)/2 = $1,250, and the aggregate consumer surplus is $46,250 per month.b.Under the uniform pricing scheme with P = $90, the quantity demanded is tires per month, and the firm's profit is per month. The consumer surplus under the uniform pricing scheme is per month. As expected, the firm profits are higher and the consumer surplus is lower under the block pricing scheme.