The managers of Roosevelt’s (a local upscale bar) are considering charging an admission fee on Thursday nights. They contemplate how to charge. Should they:?Option 1: Use just a beverage charge per beverage ordered or?Option 2: Use an admission charge (a fee to enter Roosevelt’s) and a beverage charge per beverage ordered??There are two types of people who frequent Roosevelt’s: Over 21 Students (S) and Over 21 Student Wannabees (W). Each Student has a demand for beverages of? P = 8 – QS?where is the quantity of beverages demanded if the price of a beverage is P.?Each Wannabee has a demand for beverages of ? P = 8 – 2*QW?where is the quantity of beverages demanded if the price of a beverage is P.?The marginal cost of serving a beverage is a constant $2.?Assume that there is only one demander of each type. Roosevelt’s must (by law) charge all customers the same admission charge and the same per beverage charge. Beverages do to be sold in integer amounts and prices do not have to be in integer amounts.
1 Under option 1, what is the profit maximizing price per beverage (set MR=MC and solve for Q and one price)? The joint demand curve for option 1 is P = 8 – (2/3)Q.
2 Under option 2, what is the profit maximizing two part tariff? Start by drawing two graphs and setting P = MC.
3 What is Roosevelt’s profit under Roosevelt’s best choice?
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