A manager of a nightclub realizes that demand for drinks is more elastic among students and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demand for his customer types: Under 25: qr =18-5pOver 25: q=10-2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the club $2 to make. If the manager can charge a separate entry fee and a price per drink for each group, what two-part price will the manager set for reach group. Now suppose that once again it is impossible to identify which group the customers belong. Suppose the manager lowers the price of drinks to equal to marginal cost and still wanted to attract both customers, what entry fee would the manager set? Compare the profits earned in parts a) to d). Which scheme would you choose if you could not identify customer type and which would you choose if you could identify customer type.

Now, the producer would charge price from both groups at the point where MR = MC for each group. MC…

Answered: A manager of a nightclub realizes that…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A manager of a nightclub realizes that demand for drinks is more elastic among students and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demand for his customer types:

Under 25: q^r =18-5p

Over 25: q=10-2p

The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the club $2 to make.

If the manager can charge a separate entry fee and a price per drink for each group, what two-part price will the manager set for reach group.

Now suppose that once again it is impossible to identify which group the customers belong. Suppose the manager lowers the price of drinks to equal to marginal cost and still wanted to attract both customers, what entry fee would the manager set?

Compare the profits earned in parts a) to d). Which scheme would you choose if you could not identify customer type and which would you choose if you could identify customer type.

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