Let's reconsider the case of gasoline price gouging.

a. Suppose that, during the day, the station owner's demand is given by PD 2.06-00025Q. The marginal cost of selling gasoline is $1.31 per gallon. At his current $1.69 price, he sells 1,500 gallons per week. Is this price-output combination optimal? Explain.

b. The station owner sells an equal number of gallons at night, setting PN $2.59. Suppose elasticity of demand is Ep-3. According to the optimal markup rule (in Chapter 3), is this price profit maximizing?

c. The station owner is able to sell gasoline day and night at high prices. Why aren't there more gas stations in downtown locations in major cities? Explain.