Some restaurants are "unique" and have no substitutes. Assume uniqueness is an experience attribute: once you have dined at a unique restaurant, you know exactly whether it is unique or not. To keep the math clean, we assume "uniqueness'' cannot be determined by word of mouth and does not require verification by a third party.

As mentioned, a unique restaurant has no substitutes. This means a unique restaurant doesn't have to worry about losing customers to competitors and can act like a monopolist.Assume the marginal cost of providing a meal at a unique restaurant is 15.Assume the marginal private benefit to consumer from consuming meals at restaurant is

= 20-(/2)

ifthe restaurant is unique.

If, however, restaurant is non-unique, consumer receives exactly the same amount of additional use value from consuming a meal at as she would get if she instead dined at any of its equally non-unique competitors. Assume the marginal cost of providing a meal at a non-unique restaurant is 7 as so the equilibrium price of unambiguously non-unique restaurants is $7.Assume a consumer's marginal private benefit from consuming a meal from a non-unique restaurant is also constant and equal to $7/meal.

Explain why/whether a non-unique restaurant would like to signal that is it "unique" if such signaling was inexpensive. (Hint: compare the firm's profit from a consumer who pays for her first (and any subsequent) meal at the restaurant versus the restaurant's profits if it is upfront about its non-uniqueness and charges only $7 per meal.)