A city government is considering renting space in an all day parking garage for its 100 employees. The government estimates these employees' demand function for parking spaces is 150 50P (P 2 $1), where Pis the per-day price of parking, and the city will pass on the cost. (a) If the city needs not charge each of its employees the same price for a parking space, what is the maximum amount the city could pay for the 100 spaces, and what would be the average cost per space? (b) Assume the employees' union insists that – per their contract – each employee must be charged the same price for parking, and the city's response is to intend charging the price that maximizes its parking fee revenue. What price per space would the city charge under this circumstance, and how much less total dollar benefit would the employees receive?

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A city government is considering renting space in an
all day parking garage for its 100 employees. The
government estimates these employees' demand
function for parking spaces is 150 5ÓP (P > $1), where
Pis the per-day price of parking, and the city will pass
on the cost.
(a) If the city needs not charge each of its
employees the same price for a parking space, what
is the maximum amount the city could pay for the
100 spaces, and what would be the average cost per
space?
(b) Assume the employees' union insists that – per
their contract – each employee must be charged the
same price for parking, and the city's response is to
intend charging the price that maximizes its parking
fee revenue. What price per space would the city
charge under this circumstance, and how much less
total dollar benefit would the employees receive?
Transcribed Image Text:A city government is considering renting space in an all day parking garage for its 100 employees. The government estimates these employees' demand function for parking spaces is 150 5ÓP (P > $1), where Pis the per-day price of parking, and the city will pass on the cost. (a) If the city needs not charge each of its employees the same price for a parking space, what is the maximum amount the city could pay for the 100 spaces, and what would be the average cost per space? (b) Assume the employees' union insists that – per their contract – each employee must be charged the same price for parking, and the city's response is to intend charging the price that maximizes its parking fee revenue. What price per space would the city charge under this circumstance, and how much less total dollar benefit would the employees receive?
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