Owners of a local restaurant estimate that the elasticity of demand for meals is -1.8 for senior citizens and -1.2 for everyone else. The restaurant is considering offering a senior citizen discount.

a) Use Lerner indices to determine how big (in percentage terms) that discount should be.

(Hint: Determine the ratio of the senior citizens' price to the price for everyone else.)

b) Suppose that the restaurant owners discover that seniors tend to demand more attention from their waiters and send back more food as unsatisfactory, to the extent that the marginal cost of serving a senior is twice as high as serving an adult. Accounting for these costs, how large should the senior citizen discount be?

c) Were your results in part (b) surprising? Explain them, intuitively.