Bob, Sue, and Katie go out every week and spend whatever money they have left from the week on a dinner at Burger Bart's, the only restaurant in town. The amount of cash they have at the end of the week is the most they will pay, but if there's anything left over after dinner, then they will also play video games. Bob always has $7, Sue always has $8, Katie always has $15, and Burger Bart knows this. His marginal cost of providing a meal is constant at $5 no matter how many meals he makes.
A.
- If Bart can only charge one price to the group, what price will he charge?
- How many meals will be sold?
- How much is the producer surplus and the consumer surplus?
B.
- If Bart can perfectly price discriminate, what prices will he charge?
- How many meals will he sell?
- How much will the producer and consumer surplus be now?
C. How would this be different if there were another restaurant in town? How many restaurants are in town?
D. What must be true for the results to hold for the competitive market?
Bob, Sue, and Katie go out every week and spend whatever money they have left from the week on a dinner at Burger Bart's, the only restaurant in town. The amount of cash they have at the end of the week is the most they will pay, but if there's anything left over after dinner, then they will also play video games. Bob always has $7, Sue always has $8, Katie always has $15, and Burger Bart knows this. His marginal cost of providing a meal is constant at $5 no matter how many meals he makes.
A.
- If Bart can only charge one price to the group, what price will he charge?
- How many meals will be sold?
- How much is the producer surplus and the consumer surplus?
B.
- If Bart can perfectly price discriminate, what prices will he charge?
- How many meals will he sell?
- How much will the producer and consumer surplus be now?
C. How would this be different if there were another restaurant in town? How many restaurants are in town?
D. What must be true for the results to hold for the competitive market?
Related textbook solutions
Related questions
Questions 1 and 2 do not need to be answered, they are just there for questions 3 and 4. Only bolded need answered.
1.Graph the following market demand function Q = 300-25P, plotting P (prices) on the vertical axis, and Q (quantity), on the horizontal axis. Next, show how much quantity demanded changes when the price of the good given by this demand function increases from $5 to $7?
2.Consider that the demand curve in part (a) above represents the market demand for a steak burger meal in a local area. This local area has three fast-food restaurants that exclusively produce these meals, and they are owned by Sam, Sony, and Sheila. Their supply curves for a steak burger meal are given as follows:
|
Sam's Eatery |
Sony's Hot Meals |
Sheila's "To Go" |
|||
|
Price ($) |
Quantity |
Price ($) |
Quantity |
Price ($) |
Quantity |
|
2.50 |
0 |
2.50 |
5 |
2.50 |
5 |
|
5.00 |
15 |
5.00 |
20 |
5 |
15 |
|
8.00 |
28 |
8.00 |
42 |
8.00 |
30 |
|
10.00 |
35 |
10.00 |
50 |
10.00 |
40 |
|
12.50 |
55 |
12.50 |
75 |
12.50 |
60 |
|
15.00 |
80 |
15.00 |
100 |
15.00 |
80 |
3.Consider the exercise in Question 2. The government now declares that steak burger meals in that locality should sell for $5.00. Given the correct answers in Question 1(b), would this represent a price ceiling or a price floor? Explain. Further, determine what would be the quantity of shortage or surplus that would exist in this market, and be explicit whether it is a surplus or a shortage and explain why.
4.Given the readings you looked at on price controls, what other problems typically arise, besides shortages or surpluses, when price controls are put in place within well-functioning markets?
