Hayley’s Bistro is considering having an “early bird special,” discounts for ind

Question

Hayley’s Bistro is considering having an “early bird special,” discounts for individuals who are willing to dine early. One reason that a restaurant might consider such a plan is because the restaurant gets too full at peak times. Let’s assume that Hayley does not have this problem; Hayley is considering the special purely as a price discrimination scheme. Assume the costs of serving customers are constant throughout the day and are equal to $10 per customer. This implies that overcrowding, turning people away, etc. are not problems, even at peak hours. Hayley’s Bistro serves two types of customers, senior citizens and young people. There are 100 customers of each type. Within each group, the consumers are identical. The total willingness to pay for dinner at Hayley’s by each group is a function of the time of day. Each customer will only dine once per day.

(a) Suppose that Hayley is forced to charge the same price for dinner at 6 as for dinner at 7. Hayley is also forced to charge the same price to Seniors as to Young People. How much should Hayley charge? How much profit will Hayley earn?
(b) Would your answer in (a) change if it cost $20 to serve each customer?
(c) Assume again that it still costs $10 to serve each customer. Now suppose that Hayley can charge a “senior citizen price” and a regular price. Hayley can also charge different prices for dinner at 6 and for dinner at 7. What will the regular price be at 6? At 7? How much will the senior citizen price be at 6? At 7? How many people total will dine at 6? At 7? What will Hayleys profits be?
(d) Now suppose that Hayley cannot charge different prices to seniors and young people. However, Hayley can charge different prices for dinner at 6 and for dinner at 7. How much should Hayley charge for dinner at 6? For dinner at 7? How much profit will Hayley earn?

Explanation / Answer

a)if Hayley is forced to charge same price for dinner at 6 and dinner at 7 and also same price for both senior citizens and young people, then it must charge the minimum willingness to pay amount of both customers.

From the given table, it is clear the minimum willingness to pay is $29. Therefore, Hayley should charge $29 for both categories of customer. As there are total 200 customers for dinner, the total revenue = 200*$29 = $5800

Also total cost incurred for dinner of 200 customers = 200*$10= $2000

Therefore, Hayley will earn total profit =$5800-$2000=$3800

b) If cost of serving dinner = $20/customer

Then total profit = $5800-$4000=$1800

c) From the given, condition, the senior citizen price and regular price will be same as shown in the above table.

The senior citizen price at 6 = $29 and senior citizen price at 7 =$35

It is clear that customers would prefer dinner at lowest charge.

Total number of senior citizen customers =100

Therefore, number of senior citizen customers for dinner at 6= 35/(29+35)*100= 54,68= 55 (Rounded to next digit)

             and number of senior citizen customers for dinner at 7 = 29/64*100= 45

Also number of young people ffor dinner at 6 = 58/(58+46)*100= 55.76 = 56 (Rounded to next digit)

and number of young people for dinner at 7 = 46/(58+46)*100=44

Therefore, total number of people for dinner at 6 = 55+56=111 and total number of people for dinner at 7 = 45+44=89

Hayley's total revenue = 55*$29+45*$35+56*$46+44*$58 = $8298

Therefore, total profit of hayley = $8298- $2000=$6298

d) The minimum dinner price that Hayley should charge for dinner at 6 for both seniors and young people = $29

Also the minimum dinner price for dinner at 7 for both seniors and young people = $35

Therefore, from part (c), total number of seniors and young people for dinner at 6 is 55*2 = 110

Also total number of seniors and young people for dinner at 7 is 45*2=90

therefore, total profits of Hayley = 110*$29+90*$35- $2000= $4340

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.