Answered step by step
Verified Expert Solution
Question
1 Approved Answer
5. Montyville Pizzeria has a clientele of two types, Hungry (H) consumer and Less Hungry (L) consumer, split 50/50. The type 1 Hungry (H) consumer
5. Montyville Pizzeria has a clientele of two types, Hungry (H) consumer and Less Hungry (L) consumer, split 50/50. The type 1 Hungry (H) consumer values the first pizza at $7 and second at $4. The type 2 Less hungry (L) consumer values the first pizza at $6 and second at $2. The cost of production of each pizza is $3. Suppose we want to implement the following: the hungry type buys the 2 pizzas (qu = 2) for a price of PH=11 (for both), and the Less hungry type buys the one pizza (qu = 1) for a price of PL.=6 (for one). Write down the relevant individual rationality and incentive compatibility constraints for all the types (12 points). What are the profit-maximizing prices, payoffs for consumers, and profits for the firm? (18 points)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started