econ_101_PS_5_sp08

econ_101_PS_5_sp08 - Prof.Schuler Econ 101 Spring 2008...

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Prof.Schuler Econ 101 Spring 2008 Problem Set 5 Due in Lecture on Monday, April 7, 2008 Q.1 Patrick knows how to make delicious Pancakes and decides to open a restaurant in Ithaca called the Pancake House. As it turns out, his restaurant is the only one in town that serves these terrific Pancakes and all customers come to his restaurant. Assume that his fixed costs (for rent and equipment) are $10,000 per year. It costs Patrick $1.00 to make each plate of pancakes. The table below shows the annual demand for pancakes by both non-students and students. a). Fill in the table labeled A in the case where Patrick cannot distinguish between students and non-students. What is the optimal price and quantity? What is Patrick‘s profit in this case ? b) Now, assume Patrick can price discriminate, that is charge different prices to non- students and students. Fill in the tables below for students and non-students (labeled B). What is the profit-maximizing price and quantity in each market? c) Compare Patrick’s profits in parts (a) and (b). d) Explain how Patrick might distinguish legally between students and non-students in order to charge different customers might beat this pricing scheme. e) Suppose the economic commissar of Ithaca is upset at the exorbitant price Patrick charges for pancakes , and to get even, she assesses an annual health permit fee of $25,000 on Patrick’s Pancake House. In this case, what would Patrick’s optimal price and output decision be under case (a) in (i) the Short Run? (ii)the long run ,after this year?
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This note was uploaded on 01/18/2009 for the course ECON 101 taught by Professor Burkhauser during the Fall '08 term at Cornell.

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econ_101_PS_5_sp08 - Prof.Schuler Econ 101 Spring 2008...

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