Answer to Question #76716 in Microeconomics for Jigar Patel

Question

Another explanation for why queues may exist is so restaurants can practise price discrimination, which is sometimes illegal. By restricting the quantity supplied, the owner can adopt ‘behind the counter’ or ‘not on the books’ policies that give priority seating and special bookings to customers who are willing to pay more. In addition, because these payments are not on the records the owner does not pay taxes on them.

a) With the help of an appropriate graph (for simplicity, assume the seller is a monopoly), show how a firm can profit by restricting the quantity it sells (while keeping the legal price the same), while practising price discrimination with a subset of consumers.

Answer 1

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