Jackistheowneroftheonlylocalbarinasmalltown.Hesellswhiskeyin one-ounce glasses. For simplicity, let’s assume it doesn’t cost Jack anything to run his business. There are two customers, Adam and Burt who are twin brothers. Adam’s demand function is yA = 16 – 2p, and Burt’s demand function is yB = 8 – p (price is measured in dollars and quantity is measured by ounces). Jack knows their demand functions, but the problem is that he cannot tell them apart since they look exactly the same to him. To increase his profits, Jack offers the following two options that his customers can choose from: (1) You can pay $T1 up front and drink as much as you want; or (2) Pay $T2 up front and the price per ounce of whiskey will be $p. 1.a If p = 4, what is the maximal T2 that Jack can charge so that Burt is willing to come to the bar? 1.b What is the maximal T1 that Jack can charge so that Adam will choose the first pricing option?
-
Jackistheowneroftheonlylocalbarinasmalltown.Hesellswhiskeyin one-ounce glasses. For simplicity, let’s assume it doesn’t cost Jack anything to run his business. There are two customers, Adam and Burt who are twin brothers. Adam’s demand function is yA = 16 – 2p, and Burt’s demand function is yB = 8 – p (price is measured in dollars and quantity is measured by ounces). Jack knows their demand functions, but the problem is that he cannot tell them apart since they look exactly the same to him. To increase his profits, Jack offers the following two options that his customers can choose from:
(1) You can pay $T1 up front and drink as much as you want; or (2) Pay $T2 up front and the price per ounce of whiskey will be $p.
1.a If p = 4, what is the maximal T2 that Jack can charge so that Burt is willing to come to the bar?
1.b What is the maximal T1 that Jack can charge so that Adam will choose the first pricing option?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
