Gelateria Ltd, uses an old family recipe for chocolate ice cream to start up their own icecream company. They figure out that they can produce and sell this ice cream at a unit cost of30p per scoop. Luckily, they can strike a deal with the University of Portsmouth to be theirexclusive ice cream retailer on campus. 2,000 of the university's students would potentiallybuy one scoop of ice cream each per day over the summer, 1,000 of whom would be willingto pay up to 80p per scoop of this particular ice cream and 1,000 even £1.2 per scoop.а)What is the optimal uniform price for this chocolate ice cream? How much profit willGelateria make at this price?In an attempt to further increase their profit, they conduct some market research whichyields the result that the students with high willingness to pay would be willing to payeven up to £2 per scoop if they used organic chocolate. However, the other students'willingness to pay for this higher quality would only be slightly higher than for theb)regular ice cream, at 90p per scoop. The production cost for the higher quality is 40pper scoop higher than for the regular variety. Construct the optimal screening contract,explaining the participation and the incentive compatibility constraints.Is the contract identified in (b) the overall optimal contract?

Given information Cost of ice-cream =0.30 per scoop Potential buyer=2000 Willingness to pay for 1000…

Gelateria Ltd, uses an old family recipe for chocolate ice cream to start up their own ice cream company. They figure out that they can produce and sell this ice cream at a unit cost of 30p per scoop. Luckily, they can strike a deal with the University of Portsmouth to be their exclusive ice cream retailer on campus. 2,000 of the university's students would potentially buy one scoop of ice cream each per day over the summer, 1,000 of whom would be willing to pay up to 80p per scoop of this particular ice cream and 1,000 even £1.2 per scoop. а) What is the optimal uniform price for this chocolate ice cream? How much profit will Gelateria make at this price? b) In an attempt to further increase their profit, they conduct some market research which yields the result that the students with high willingness to pay would be willing to pay even up to £2 per scoop if they used organic chocolate. However, the other students' willingness to pay for this higher quality would only be slightly higher than for the

Gelateria Ltd, uses an old family recipe for chocolate ice cream to start up their own ice cream company. They figure out that they can produce and sell this ice cream at a unit cost of 30p per scoop. Luckily, they can strike a deal with the University of Portsmouth to be their exclusive ice cream retailer on campus. 2,000 of the university's students would potentially buy one scoop of ice cream each per day over the summer, 1,000 of whom would be willing to pay up to 80p per scoop of this particular ice cream and 1,000 even £1.2 per scoop. а) What is the optimal uniform price for this chocolate ice cream? How much profit will Gelateria make at this price? b) In an attempt to further increase their profit, they conduct some market research which yields the result that the students with high willingness to pay would be willing to pay even up to £2 per scoop if they used organic chocolate. However, the other students' willingness to pay for this higher quality would only be slightly higher than for the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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