Figure 16-3 The Lizard Lounge is well known for its exotic cocktails.Figure 16-3 shows its estimated demand curve for cocktails.
-Refer to Figure 16-3.The owners of the Lizard Lounge are considering the following four pricing options: a.A single price scheme where the cocktail price equals the monopoly price.
B.A single price scheme where the cocktail price equals the competitive price.
C.A two-part tariff: a monopoly cocktail price and a cover charge that will generate total revenue equal to the area X.
D.A two-part tariff: a competitive cocktail price and whatever cover charge that will generate a total revenue equivalent to the area X + Y + Z.
Which pricing scheme(s)achieve the economically efficient outcome?

Question

Figure 16-3  The Lizard Lounge is well known for its exotic cocktails.Figure 16-3 shows its estimated demand curve for cocktails.
-Refer to Figure 16-3.The owners of the Lizard Lounge are considering the following four pricing options: a.A single price scheme where the cocktail price equals the monopoly price.
B.A single price scheme where the cocktail price equals the competitive price.
C.A two-part tariff: a monopoly cocktail price and a cover charge that will generate total revenue equal to the area X.
D.A two-part tariff: a competitive cocktail price and whatever cover charge that will generate a total revenue equivalent to the area X + Y + Z.
Which pricing scheme(s)achieve the economically efficient outcome?

Quizplus · Accepted Answer

The economically efficient outcome is achieved when price equals marginal cost, which is the competitive price. Schemes b and d involve setting the cocktail price at the competitive level, thus achieving economic efficiency.

Figure 16-3 the Lizard Lounge Is Well Known for Its