Two-part tariffs and underage drinkers
Not what you're looking for?
The Rusty Anchor Bar has 2 types of patrons: legal and underage drinkers. Even though it is illegal to allow entry to underage drinkers, there is no perfect way to identify underage drinkers since they often use fake identification cards. The penalty for serving underage drinkers is severe - the bar could lose its license. Assume the bar's MC = $3 per drink and the nightly drink demand curve is given by P(legal)=5-Q(legal) and P(underage)=3.5-Q(underage).
1) Design a two-part tariff (pricing) structure that would get the max nightly profit from each LEGAL drinker. The two-part pricing would include a cover charge plus a charge for each drink.
2) Under the two-part tariff, will Underage drinkers attempt to come the bar? Why or why not?
Purchase this Solution
Solution Summary
Attempts to prevent underage drinking by price discrimination are examined. The expert designs a two-part tariff for underage drinkers.
Solution Preview
The profit-maximizing two-part tariff can be found by setting the per drink price equal to the marginal cost and the entry fee equal to consumer ...
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.