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Determine the optimal discount as a percent relative

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The owners of a bar estimate that the elasticity of demand for drinks is -1.5 for senior citizens and -1.33 for everyone else. Use this information to assist with answering the questions below in Part A and Part B.

Part A: The bar is considering offering a senior citizen discount. Determine the optimal discount as a percent relative to the price you're using to sell to everyone else.

Part B: Suppose that the bar owners discover that seniors tend to demand more attention from bartenders and send back more drinks as unsatisfactory, and all that happens to an extent that the Marginal Cost of serving a senior is twice as high as serving others. Accounting for these real costs, what is the optimal senior discount?

Reference no: EM133077615

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