Question

Bars often offer specials on appetizers during "happy hour." What does the concept of price discrimination suggest about why this might be profit-maximizing behavior?

Answer 1

Answer

The price discrimination means charging different prices for the same product. The bars often offer specials on appetizers during "happy hour". In bars, during certain period of time, there are very few customers come to the bars and as a result, the demand is lower than the peak time period. Now, to attract people and to increase the sales during this time period, the bars offer their products at lower price than the price in peak time period, and call that lower price period as 'Happy Hour'. Now,to take the opportunity of 'Happy Hour', and to save the money people usually like to visit the bars during this hour. The increase of customers increases the demand for the products the bars offer during the 'Happy Hour'. As a result, the sale of the products rises which in turn increases the revenue( Price * Quantity sold) of the bars. A firm maximizes its profit at the output level, where marginal revenue(MR) is equal to the marginal cost. The rise in revenue increases the rise in MR.