A nightclub manager realizes that demand for drinks is more elastic among students, and is trying to 1 answer below »
A nightclub manager 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 demands:
• Under 25: qr = 18 − 5 p
• Over 25: q = 10 − 2 p
The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the nightclub $2 each.
(a) If the market cannot be segmented, what is the uniform monopoly price?
(b) If the nightclub can charge according to whether or not the customer is a student but is limited to linear pricing, what price (per drink) should be set for each group?
(c) If the nightclub can set a separate cover charge and price per drink for each group, what two-part pricing schemes should it choose?
(d) Now suppose that it is impossible to distinguish between types. If the nightclub lowered drink prices to $2 and still wanted to attract both types of consumer, what cover charge would it set?
(e) -7Suppose that the nightclub again restricts itself to linear pricing. While it is impossible to explicitly “age discriminate,” the manager notices that everyone remaining after midnight is a student, while only a fraction 2 of those who arrive before midnight are students. How should drink prices be set before and after midnight? What type of price discrimination is this? Compare profits in (d) and (e).