How many shuttle rides are purchased by faculty

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Reference no: EM133197132 , Length: 1 Pages

Assignment:

Problem

Suppose now that Emory charges an annual fee F to ride its cliff shuttles and a price p per ride. The marginal cost of an additional trip is still 4. The demand functions for a representative faculty member and student are

q₁ = 20 - P1

q₂ = 20 - 2p₂

(a) If Emory charges everyone the same marginal price p, is this price discrimination? Explain.

(b) What are the optimal values of F and p if Emory must serve both faculty and students?

(d) How much profit does Emory earn? What is consumer surplus for each consumer? What is the deadweight loss?

(e) Suppose Emory decided to only serve faculty. What would Emory charge? How many faculty trips do they sell?

(f) What is Emory's profit when only serving faculty? What is consumer surplus? What is the deadweight loss?

(g) Based on what you (hopefully!) remember from consumer theory, why might a two-part tariff not be as lucrative for Emory as suggested in your analysis above? In particular, what impact does the fixed fee F have on consumers' consumption decisions?

Reference no: EM133197132

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