Suppose that you are the manager of a pizzeria that produces pizza at a constant marginal cost of $6 per pizza. The pizzeria is a local monopoly…
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1. Suppose that you are the manager of a pizzeria that produces pizza at a constant marginal cost of $6 per pizza. The pizzeria is a local monopoly near a college campus. During the day, only students eat at your restaurant. In the evening, while students are studying, faculty members eat there. If students have an elasticity of demand for pizzas equal to – 4 and faculty has an elasticity of demand equal to – 2 , what should your pricing policy be to maximize profits? Explain the intuition behind your result.
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