You operate a sushi bar which is the only one in your neighborhood. You estimate

Question

You operate a sushi bar which is the only one in your neighborhood. You estimated that the marginal cost is 10 cents per sushi unit. You know also that each consumer has a demand for sushi given by q = 20 10p, where q is number of sushi units and p is price in dollars per unit. (a) Determine the optimal price per sushi unit and calculate your profit. (b) You are considering switching to an all-you-can-eat-sushi policy. Determine the optimal price per customer. How does proft compare to pricing per unit? (c) Discuss advantages and disadvantages of the all-you-can-eat policy. (d) Find what is the optimal two-part tariff for sushi (i.e., a fee at the door plus a price per sushi piece) and calculate your profit.

Explanation / Answer

an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come.[1] The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles.[2]

There are infinitely many indifference curves: one passes through each combination. A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map.

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