Question

Consider the following scenario to answer the questions that follow. The Varsity, located in downtown Atlanta, is the world’s largest drive-in restaurant. Located near the Georgia Tech campus, the drive-in attracts two distinct types of customers: college students and visitors to Atlanta. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, with a maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5. If the Varsity decides to practice price discrimination, what will be its total revenue if it charges most customers $9 for a standard combo meal but charges a reduced price of $8 for only those customers who show their student identification card? a. $75,000 b. $80,000 c. $85,000 d. $95,000 e. $90,000

Answer 1

The correct answer is C.

Step-by-step explanation:

Giving the following information:

The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, with a maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5.

Revenue= 5,000*8 + 5,000*9= $85,000