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Determine the optimal discount as a percent relative

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Reference no: EM133084233

Owners of a restaurant estimate that the elasticity of demand for meals 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 restaurant 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 restaurant owners discover that seniors tend to demand more attention from servers and send back more food 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: EM133084233

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