Consider a midwestern college town with one coffee shop. Each cup of coffee costs the shop $1 to produce. Each customer is willing to buy one cup of coffee. There are 4000 students, each with a willingness to pay of $2. There are 1000 professors, each with a willingness to pay of $4. There are 5000 townies, each with a willingness to pay of $3. (a) Suppose the shop is unable to distinguish between the three types of customers. Determine the profitmaximizing price for a cup of coffee, the quantity sold, and the profit made by the coffee shop. Hints: you will need to check three different potential prices. Make sure to take cost into account. (b) Suppose the shop is able to distinguish between the three types and charge them different prices. Determine the prices charged and the total profit made by the coffee shop. (c) Discuss whether you think it is reasonable that the coffee shop could reliably distinguish between the three types and charge them accordingly. Is there any reason this would break down? Explain
Consider a midwestern college town with one coffee shop. Each cup of coffee costs the shop $1 to produce.
Each customer is willing to buy one cup of coffee. There are 4000 students, each with a
of $2. There are 1000 professors, each with a willingness to pay of $4. There are 5000 townies, each with a
willingness to pay of $3.
(a) Suppose the shop is unable to distinguish between the three types of customers. Determine the profitmaximizing price for a cup of coffee, the quantity sold, and the profit made by the coffee shop.
Hints: you will need to check three different potential prices. Make sure to take cost into account.
(b) Suppose the shop is able to distinguish between the three types and charge them different prices. Determine the prices charged and the total profit made by the coffee shop.
(c) Discuss whether you think it is reasonable that the coffee shop could reliably distinguish between the
three types and charge them accordingly. Is there any reason this would break down? Explain
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