How big should the senior citizen discount be

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Reference no: EM131335840

Owners of a Florida restaurant estimate that the elasticity of demand for meals is -1.5 for senior citizens and -1.33 for everyone else.

a. Given this information, how big (in percentage terms) should the senior citizen discount be?

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? (Hint: Refer back to the example in the text, but don't cancel out marginal costs!)

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

Reference no: EM131335840

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