For a parking garage of fixed capacity, the owner sets different parking rates for cars that are parked for less than 24 hours (short-term) and for those that are parked for more than 24 hours (long-term). To maximize revenue, the operator should set prices and target the number of places for each segment such that:
A) the marginal revenues from the segments are equal.
B) the total revenues from each of the segments are equal.
C) the average revenues from the segments are equal.
D) the long-term consumers pay a higher hourly price.
E) the price paid by both short-term and long-term consumers is equal.

Question

Quizplus · Accepted Answer

In order to maximize revenue, the operator should set prices such that the marginal revenues from each segment are equal. This means that the revenue gained from every additional customer in each segment should be the same. This ensures that the operator is charging the highest possible price for each segment without turning away customers. If total revenues were equal, it would mean that the operator is not differentiating between short-term and long-term customers, which may not be optimal for revenue maximization. Similarly, averaging revenues would not be an effective way of setting prices as it does not take into account the marginal revenue gained from each additional customer. Long-term consumers paying a higher hourly price or short-term and long-term consumers paying the same price would also not necessarily maximize revenue, as the optimal pricing strategy depends on the demand for parking in each segment.

For a Parking Garage of Fixed Capacity, the Owner Sets