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Uber has a monopoly on ride-sharing services. In one town, the demand curve on weekdays is given by the following equation: P = 50 - Q. However, during weekend nights, or peak hours, the demand for rides increases dramatically and the new demand curve is P = 100 - Q. Assume that marginal cost is zero.
a. Determine the profit-maximizing price during weekdays and during peak hours. [4]
b. Determine the profit-maximizing price during weekdays and during peak hours if MC = 10 instead of zero. [4]
c. Draw a graph showing the demand, marginal revenue, and marginal cost curves during peak hours from part (b), indicating the profit-maximizing price and quantity. Determine Uber’s profit and the deadweight loss during peak hours, and show them on the graph. [8]
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