Question

Hayley’s Bistro is considering having an “early bird special,” discounts for individuals who are willing to dine early. One reason that a restaurant might consider such a plan is because the restaurant gets too full at peak times. Let’s assume that Hayley does not have this problem; Hayley is considering the special purely as a price discrimination scheme. Assume the costs of serving customers are constant throughout the day and are equal to $10 per customer. This implies that overcrowding, turning people away, etc. are not problems, even at peak hours. Hayley’s Bistro serves two types of customers, senior citizens and young people. There are 100 customers of each type. Within each group, the consumers are identical. The total willingness to pay for dinner at Hayley’s by each group is a function of the time of day. Each customer will only dine once per day.

	Seniors	Young People
Dinner at 6	$29	$46
Dinner at 7	$35	$58

(a) Suppose that Hayley is forced to charge the same price for dinner at 6 as for dinner at 7. Hayley is also forced to charge the same price to Seniors as to Young People. How much should Hayley charge? How much profit will Hayley earn?
(b) Would your answer in (a) change if it cost $20 to serve each customer?
(c) Assume again that it still costs $10 to serve each customer. Now suppose that Hayley can charge a “senior citizen price” and a regular price. Hayley can also charge different prices for dinner at 6 and for dinner at 7. What will the regular price be at 6? At 7? How much will the senior citizen price be at 6? At 7? How many people total will dine at 6? At 7? What will Hayleys profits be?
(d) Now suppose that Hayley cannot charge different prices to seniors and young people. However, Hayley can charge different prices for dinner at 6 and for dinner at 7. How much should Hayley charge for dinner at 6? For dinner at 7? How much profit will Hayley earn?