A nightclub manager realizes that demand for drinks is more elastic among students, and is trying...

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 − 5p
• Over 25: q = 10 − 2p
The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the
nightclub $2 each.

(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 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 2/7
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).

Expert Solution

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Rahul Sunny answered 1 year ago

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