Mos Eisley Cantina is the only tavern in a small remote planet. Demand at Mos's is QD = 880 - 200P while the daily total cost is TC(Q)=0.005Q2+2Q+50 where q is the number of clients served each day and total cost is measured in Wupi Upis per customer.
a) In a diagram, illustrate the Cantina's Average Total Cost, Average Variable Cost and Marginal Cost curves.
b) Find the Cantina's minimum efficient scale and its average cost when operating at minimum efficient scale.
c) Find the Cantina's marginal revenue function.
d) In the same diagram, illustrate the Cantina's demand curve and marginal revenue curve.
e) Find the Cantina's profit maximizing output (Q*) and price (P*).
f) If Mos knew his clients really well, he could charge each of them their reservation price. In this case, how many clients would
Mos serve each day?
Mos is notable to perfectly price discriminate, however he knows that humans and wookies have a demand of QDHW = 400 - 100P while the other customers have demand of QDO = 480 - 100P.
g) If Mos charges all clients the same price, how many humans or Wookies does he serve each day? How many clients of other species does he serve each day?
h) If Mos charges all clients the same price, what is the price elasticity of demand of humans and Wookies? What is the price elasticity of demand of clients of other species?
i) Would Mos' profit increase if he charged one price to humans and Wookies and a different price to clients of other species? What type of client would pay a higher price?