Micro (price setting and price discrimination) Watch

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Report Thread starter 5 years ago
Hey guys,

Im having a hard time with an assignment, and was hoping you could help me. I have already done the assignment, but I doubt all of it is correct, so I want to hear your opinion on the different tasks. Here it goes:

The owner of a pub suspects that students' demand for beer is much more elastic with respect to workers' demand, and he asked you to help him setting beer prices. The owner estimated the following average demands, which associate to each price the number of beers purchased by the average consumer (student or worker):

- Students:
qs = 20−4p
- Workers:
qw = 16−2p

Each night, half of the clients of the pub are students and half are workers. The pub incurs a cost of $3 per beer.

a) If the owner of the pub cannot distinguish between students and workers, what price per beer should he set?

b) If the pub owner can charge according to whether or not the customer is a student (for instance, by applying discounts to the holders of a student card), what price should he set for each group?

c) What type of price discrimination would this be?

d) Suppose that it is impossible to explicitly discriminate across consumers. However, the owner knows that everyone remaining after midnight is a student, while only a 10% of those who arrive and consume before midnight are students. How should beer prices be set before and after midnight?

e) What type of price discrimination would this be?

f) Suppose that workers do not mind too much to come after midnight, if the prices of beer is

much lower then. How would they respond to the pricing you calculated in d)? In this case, what change would you recommend in the pricing strategy of the pub, with respect to your answer in question d? [a qualitative answer, without calculations, is accepted]

g) Assume that going to the pub after midnight reduces the surplus of a worker by 7$, and that the after-midnight price is equal to the one calculated in d). Calculate the maximum before- midnight price such that workers prefer to come before midnight.

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Report 5 years ago
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