Question

In: Economics

You are the manager of a gas station and your goal is to maximize profits. Based...

  1. You are the manager of a gas station and your goal is to maximize profits. Based on your past experience, the elasticity of demand by Texans for a car wash is -4, while the elasticity of demand by non-Texans for a car was is -6. If you charge Texans $20 for a car wash, how much should you charge a man with Oklahoma license plates for a car wash?

    a.

    $20.00
    b.

    $1.50
    c.

    $18.00
    d.

    $15.00

Solutions

Expert Solution

the formulas are:
MC=P(1+(1/e))
P=MC/(1+(1/e))
MC=marginal cost
e=elastcity
P=price
===
first, we will find the MC and then find the price
MC=20*(1+(1/(-4)))
=15
P=15/(1+(1/(-6)))
=18
so you will charge a price of $18 to the man with Oklahoma license plates for a car wash

option c

Rahul Sunny answered 2 years ago
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