Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed below. $$\begin{array} { | c | c | }
\hline \text { Customer } & \begin{array} { c }
\text { Reservation Price } \
\text { (\$/Rental) }
\end{array} \
\hline \mathrm { A } & 22 \
\hline \mathrm { B } & 16 \
\hline \mathrm { C } & 12 \
\hline \mathrm { D } & 8 \
\hline \mathrm { E } & 6 \
\hline \mathrm { F } & 4 \
\hline
\end{array}$$ Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the morning, it will rent out ______ bike(s) and charge ______ per bike.

Question

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed below. $$\begin{array} { | c | c | } 
\hline \text { Customer } & \begin{array} { c } 
\text { Reservation Price } \
\text { (\$/Rental) }
\end{array} \
\hline \mathrm { A } & 22 \
\hline \mathrm { B } & 16 \
\hline \mathrm { C } & 12 \
\hline \mathrm { D } & 8 \
\hline \mathrm { E } & 6 \
\hline \mathrm { F } & 4 \
\hline
\end{array}$$ Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the morning, it will rent out ______ bike(s) and charge ______ per bike.

Quizplus · Accepted Answer

Island Bikes will rent to customers A, B, and C in the morning, as their reservation prices are above $10. The highest price they can charge while still renting to all three is $12, which is customer C's reservation price.

Suppose Island Bikes, a Profit-Maximizing Firm, Is the Only Bike