A nightclub owner has both students and other adults as customers. The demand for drinks by typical students is Qs = 36 - 6P. The demand for drinks by a typical other adult is Qo = 20 - 4P. There are equal number of students and other adults. The marginal cost for each drinks is $4. Assume the club owner is able to implement first degree price discrimination ( personalised pricing) using two part pricing, charging an entrance fee of Es to students and Eo to other adults as well as price per drink of ps to students and po to other adults. a) What is the student's participation constraint and the other adult's participation constraint? Provide a graphical illustration of the potential consumer surplus for each of these two groups (student and adults) b)What is the club owner's profit maximisation problem , assuming that the owner chooses prices and entrance fees for student and other adults. Do the participation constraint bind in equilibrium? why or why not? c) derive the optimal price for drinks to both students and other adults , respectively

A nightclub owner has both students and other adults as customers. The demand for drinks by typical students is Qs = 36 - 6P. The demand for drinks by a typical other adult is Qo = 20 - 4P. There are equal number of students and other adults. The marginal cost for each drinks is $4. Assume the club owner is able to implement first degree price discrimination ( personalised pricing) using two part pricing, charging an entrance fee of Es to students and Eo to other adults as well as price per drink of ps to students and po to other adults. a) What is the student's participation constraint and the other adult's participation constraint? Provide a graphical illustration of the potential consumer surplus for each of these two groups (student and adults) b)What is the club owner's profit maximisation problem , assuming that the owner chooses prices and entrance fees for student and other adults. Do the participation constraint bind in equilibrium? why or why not? c) derive the optimal price for drinks to both students and other adults , respectively

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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