Back Bay Book sells paperbacks for a standard price of $12 each. Customers who buy five or more books can get a price of $8 per book.
All customers with an elastic demand have the following individual demand curve.
How many books would this customer buy at the regular price of $12 each?
What is the net change in consumer surplus if the customer buys five books to get the discount price of $8 each?
Would this customer take advantage of a quantity discount?
Bay Back Books wants to use quantity discount to reveal the difference between customers with the elastic demand and customers with the inelastic demand. What additional information would be needed in order to determine whether the quantity discount scheme is incentive compatible?
The Green Gables Amphitheater has these three equal-sized seating areas for concerts.
Close: Seats right in front of the stage
Mid-range: average seats
Far: Seats in the very back
For an upcoming concert, there are three types of potential concert-goers: Fanatics, enthusiasts, and Casual Fans.
Each of these three groups has the following set of willingness to pay values for the various types of tickets:
Fanatics are willing to pay:
$300 for a good seat
$150 for a mid-range set
$100 for a far set
Enthusiast are willing to pay:
$150 for a good seat
$100 for a mid-range seat
$75 for a far seat
Casual fans are willing to pay:
$85 for a good seat
$75 for a mid-range seat
$65 for a far seat
The green gables amphitheater estimates that ⅓ of the potential audience falls into each category, but there is no way to identify which category a person belongs to which they purchase their tickets. The amphitheater has set up the following price structure.
Price for a good seat is $200
Price for a mid-range seat $95
Price for a far seat is $60
The amphitheater wants to fill the venue completely, with fanatics in the good seats, enthusiasts in the mid-range seats, and casual fans in the far seats. You have been consulted to determine whether this price structure will meet their goals
Answer these questions:
What type of ticket will each group want to purchase?
Is there any type of ticket that no one would want to purchase?
Is the pricing scheme incentive compatible?
If it is not incentive-compatible, explain in a couple of sentences why this is the case?
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