110_11s_SelectedQ_Ch05

110_11s_SelectedQ_Ch05 - Econ 110 Selected Questions From...

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1 Econ 110 Selected Questions From Chapter 5 EFFICIENCY AND EQUITY 1. At Chez Panisse, the restaurant in Berkeley that is credited with having created California cuisine, reservations are essential. At Mandarin Dynasty, a restaurant near the University of California San Diego, reservations are recommended. At Eli Cannon’s, a restaurant in Middletown Connecticut, reservations are not accepted. a. Describe the method of allocating scarce table resources at these three restaurants. All these restaurants use a first-come, first-serve system. Eli Cannon’s uses this system directly. Chez Panisse uses a first-come, first-serve because the first person to call to make a reservation at a particular time is allocated the table at that time. Mandarin Dynasty uses a combination of the immediate first-come, first serve system and the reservation based first-come, first-serve system. b. Why do you think restaurants have different reservations policies? The speed with which tables turn over at the different restaurants probably is quite different and the customers probably have quite different values of time. Chez Panisse has a low turnover rate—only 1 or 2 groups of customers can use a table each night—and its customers have a high value of time. If Chez Panisse refused to take reservations, its customers would need to wait an inefficiently long time and would go elsewhere so that Chez Panisse’s profits would be lower. At Eli Cannon’s, the tables have a high turnover rate and the customers have a lower value of time. Allowing reservations would be costly for Eli Cannon’s and would spare its customers only a slight wait at most so that allowing reservations would decrease Eli Cannon’s profits. At Mandarin Dynasty, the turnover rate of the tables is between that at Chez Panisse and Eli Cannon’s, so it uses a combination of phone reservation first-come, first-serve and appear in person first-come, first serve. c. Why might each restaurant be using an efficient allocation method? Each restaurant is using a different allocation method because of the relative costs. Each uses the method that has the lowest cost for the restaurant. d. Why do you think restaurants don’t use the market price to allocate their tables? Market allocation requires that customers pay for a table and the price would fluctuate from one hour to the next depending on the number of customers who arrive. Customers would be highly uncertain about the price they would need to pay and such Quantity demanded (miles) Price (dollars per mile) Ann Beth Cy 3 30 25 20 4 25 20 15 5 20 15 10 6 15 10 5 7 10 5 0 8 5 0 0 9 0 0 0
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2 uncertainty decreases the demand for meals from the restaurant. The decreased demand lowers the restaurant’s profit. 2.
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110_11s_SelectedQ_Ch05 - Econ 110 Selected Questions From...

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