1 3. Suppose Boardwalk cafe is the only shop that sells smoothies at the UWI campus. The marginal cost is 5 dollarsper ounce of smoothie. There is a 50-50 chance that a customer is a smoothie addict (high type with On = 20)%3Dor a regular Joe (low type with 0 15). Each customer type derives utility from smoothie consumption whichis of the form v(q) = 2q05, and pays a total tariff of T to the cafe.(a) Compute the quantities, tariffs, and expected profit for Boardwalk cafe (i.e., assuming that it can observethe customer's type).(b) Show that in the first best solution, it is also the case that the slope of the isoprofit curve is equal to MRSfor each customer type.

Introduction Here Boardwalk café is the only shop which sells smoothies. Marginal cost of smoothie =…

3. Suppose Boardwalk cafe is the only shop that sells smoothies at the UWI campus. The marginal cost is 5 dollars per ounce of smoothie. There is a 50-50 chance that a customer is a smoothie addict (high type with O 20) or a regular Joe (low type with 0, 15). Each customer type derives utility from smoothie consumption which is of the form v(q) = 2q"5, and pays a total tariff of T to the cafe. (a) Compute the quantities, tariffs, and expected profit for Boardwalk cafe (i.e., assuming that it can observe the customer's type).

3. Suppose Boardwalk cafe is the only shop that sells smoothies at the UWI campus. The marginal cost is 5 dollars per ounce of smoothie. There is a 50-50 chance that a customer is a smoothie addict (high type with O 20) or a regular Joe (low type with 0, 15). Each customer type derives utility from smoothie consumption which is of the form v(q) = 2q"5, and pays a total tariff of T to the cafe. (a) Compute the quantities, tariffs, and expected profit for Boardwalk cafe (i.e., assuming that it can observe the customer's type).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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