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Question 3 RawDeal is the new sushi bar in the neighborhood. Their estimated marginal cost is 10 cents per sushi unit. RawDeal estimates that each consumer has a demand for sushi given by q = 20 – 10 p, where q is number of sushi units and p is price in dollars per unit. 1. Determine the optimal price per sushi unit. 2. RawDeal is considering switching to an all-you-can-eat-sushi policy. Determine the optimal price per customer. How does profit compare to pricing per unit? 3. Discuss other advantages and disadvantages of each pricing option. 4. Ignoring implementation costs, what is the optimal two-part tariff for sushi (i.e., a fee at the door plus a price per sushi piece).

Answer 1

1) the marginal cost given is 10

the demand function given as Q= 20 - 10P so the total revenue will be

   TR = Q*P = (20 - 10P) * P = 20P - 10P²

   MR = d(TR)/ d (p) = 20 - 20P

now to get the equilibrium price per unit we need to equalise both the MC and MR

MC = MR

   10 = 20 - 20P

20P = 10

P = 10/20 = 0.5 cents per unit sushi.