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Price Elasticity and Price Discrimination

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You operate a small but popular and profitable restaurant/bar in a college town. There are several other restaurants and bars nearby. You have conducted a market research study and discovered that the price elasticity of demand for local residents is lower (less elastic) than the price elasticity of demand for college students, who are usually in town only while the college is in session about 9 months out of the year. Discuss at least two pricing strategies you can use to increase your revenues and analyze them in terms of their ability to generate additional profits. Indicate any additional assumptions you are making.

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Solution Preview

Since the price elasticity of demand for local residents is lower as compared to college students, restaurant can engage in price discrimination by charging a higher price from local residents and offering discounts to college students. Restaurant can offer college students ...

Solution Summary

The expert discusses a scenario related to price elasticity of demand and appropriate pricing strategy for a restaurant.

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