Question

Some vending machines on college campuses sell identical items, such as the same bags of potato chips, for two different prices. The low-priced chips generally sell out by the end of the day, leaving the more expensive chips for late-night visitors to the vending machines. What must the vending machine operators think about the demand of people who visit the machine at night relative to those who visit the machine during the day

Answer 1

Answer:

People who buy snacks at night have less elastic demand than people who buy doing the day. People buying during the night have fewer substitutes to choose from (as a lot of restaurants and stores are closed).

Explanation:

we know that here Profit is express as

Profit = Revenue - Cost     ........................1

and

Profit = P × Q - C(Q)    ..........................2

so for maximize profit we do the differential it w.r.t Q and it will equal to 0

so

$P + \frac{\partial P}{\partial Q}\times Q - MC$   =   0    .............3

and

$P(1 + \frac{\partial P}{\partial Q}\times \frac{Q}{P})$   =   MC       ..................4

so

$\varepsilon = \frac{\partial Q}{\partial P}\times \frac{P}{Q}$  

here $\varepsilon$ is elasticity of demand  

so

P = $\frac{MC}{1 + 1/\varepsilon }$      ..............5

so when here lower the elasticity of demand than higher is the price charged

so that when People who buy snacks at night have less elastic demand than people who buy doing the day. People buying during the night have fewer substitutes to choose.