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. 1. If the manager cannot identify to which group his customers belong, what is the uniform monopoly price? 2. If the manager can identify to which group his customers belong, what price will he charge each group. Assume the manager can only charge a single price to each group 3. 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.
Question 1
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.
1. If the manager cannot identify to which group his customers belong, what is the uniform
2. If the manager can identify to which group his customers belong, what price will he charge each group. Assume the manager can only charge a single price to each group
3. 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.
4. 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?
5. Compare the profits earned in parts 1) to 2). 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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