2) Celebrity chef and Instagram sensation Salt Bae recently opened a branch of his ultra-expense steakhouse chain Nusr-Et right here in Dallas. Capitalizing on Salt Bae's newfound fame, Nusr-Et is known more for its ultra-high prices and over-the-top atmosphere than it is for the quality of its steaks. Case in point, any steak on the restaurant's menu can be dusted in 24-carat gold - but only for those willing and able to put up the cash.

Salt Bae's business analysts determined that its Dallas customer base can be segmented into two segments "Scenesters" and "big Spenders." The analysts estimate that 100 "Big Spenders and 400 "Scenesters" will visit the restaurant nightly. The Spenders love to show off their enormous wealth, and are willing to pay $1,000 for a gold-dusted tomahawk steak and $200 for the standard tomahawk steak The Scenesters are more budget conscious and are mainly interested in taking part in the whole spectacle. They know that the gold dust doesn't add to the steak's quality, so are willing to pay $100 for a tomahawk steak, gold or no gold. Salt Bae has procured reasonably high quality tomahawk steaks at a cost of $25 each and it costs an additional $75 to dust a steak in gold.

a) Would you consider the standard tomahawk steak to be a "damaged good" in this case? Why or why not?

b) What is the incentive constraint facing Salt Bae to ensure that Big Spenders opt for a gold-dusted steak?

c) What is Salt Bae's optimal pricing strategy in this situation? What are the resulting nighty profits?

d) Salt Bae's business analysts predict that the "Big Spenders" will soon bitch on that gold dusting does little to enhance the quality of steaks at Nusr-Et, which will cause their valuation for standard tomahawk steaks to increase to $500. How will this impact Salt Bae's optimal pricing strategy?