Question

(URGENT!!!) An investor discovered that there is no car wash service available in the small town that he has recently moved to and decides to open a shop offering this service. The estimated market demand for the car wash service is given by P = 240 – 10Q. The total cost of the car wash service is TC = 10Q² +50 and the marginal cost is MC = 20Q.

A-)Calculate the price point - elasticity of demand when the price is 80. Is the demand elastic, inelastic or unitary elastic? Explain.

B-)What will be will be the profit maximizing price and quantity if the investor is not allowed to price discriminate, and is forced to charge a uniform price to all the customers? What will be the producer surplus, consumer surplus and deadweight loss?

C-)If the investor engages in perfect price discrimination, how many car wash services will he offer? What would be the consumer surplus?

Answer 1