Question
Gareth Blackstock owns a very popular but small, 5-star restaurant. On busy holidays, the restaurant offers dining on two hour schedules. The demand for a
Gareth Blackstock owns a very popular but small, 5-star restaurant. On busy holidays, the restaurant offers dining on two hour schedules. The demand for a table for any one of the settings is given below. The restaurant has 26 tables. Given the information from the graphic, please answer the following questions.
Part A. Suppose Gareth uses a 'first-come first-serve' policy. Assume too that his customers arrive randomly at the restaurant and the arrival time is not based on their willingness to pay.
The overall societal loss associated with this policy is _Blank 1_ dollars in economic surplus.
Part B. Suppose Gareth charges a $90 reservation fee. This fee ensures a table for anyone with a reservation. All others (those that do not pay the reservation fee) can get a table on a 'first-come first serve' basis. Hint: This will require you to figure out the demand schedule in the graphic.
The average willingness to pay for consumers paying the reservation fee is _Blank 2__ dollars. The number of customers paying the fee is __Blank 3___.
The average willingness to pay for those not paying the reservation fee is __Blank 4__ dollars.
Under this fee policy, those that pay the fee enjoy some economic surplus. In total, this amounts to __Blank 5__ dollars.
Those that do not pay the fee but get a table enjoy some economic surplus. In total, this amounts to _Blank 6__ dollars.
Those that do not pay the fee and do not get a table suffer an economic loss. In total, this amounts to _Blank 7_ dollars.
Part C. The fee that yields the smallest loss in economic surplus is __Blank 8__.
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