Jamal, Laila and Salwa have been standing in a queue for almost an hour waiting to be served at Hamada, a new Japanese restaurant. It is possible that some of the people in the queue won't be served at all before the restaurant closes. Which of the following could explain why the restaurant does not simply increase prices high enough to eliminate the queues?
A. In situations where consumption takes place publicly, demand for the product is also influenced by how many other people are buying the product. Consequently, a popular restaurant that increases its prices enough to eliminate queues might find that it has also eliminated its popularity.
B. Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers.
C. The demand for restaurant meals is relatively elastic and if the firm increases prices it will lower its profits.

Question

Quizplus · Accepted Answer

All three options provided explain why a restaurant might choose not to increase its prices to eliminate queues. Option A suggests that high visibility of demand (queues) can itself be a draw for customers, implying that eliminating queues might reduce the restaurant's appeal. Option B points out that significant price increases might be perceived as unfair, potentially alienating customers. Option C indicates that because the demand for restaurant meals is relatively elastic, raising prices could lead to a decrease in quantity demanded that outweighs the benefit of higher prices, thus reducing overall profits.

Jamal, Laila and Salwa Have Been Standing in a Queue