Question

please answer (e) only

A nightclub manager realises 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 25s q=18-5p Over 25s q=10-2p 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 price 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) Suppose again that the nightclub is restricted to linear pricing and that age discrimination is impossible. However, the manager believes that everyone remaining after midnight is under 25,while only 2/7 of consumers who arrives before midnight is under 25. What are the optimal prices before and after midnight? How do the profits obtained here compare with those in parts c and d?(Hint: For before-midnight market, let’s normalize the total number of patrons to be 1. Then we have 2/7 young patrons and 5/7 old patrons.)

Answer 1