, ,

Here’s Professor Victor Lima’s solution to last weeks question. Professor Lima, if you haven’t heard of him, is the most amazing lecturer ever. I highly recommend any of his classes if you have the chance.

Most of you were actually right on with the answer that he was rational. And someone even mentioned unitary elasticity, which Lima discusses in his solution. Please comment below if I transcribed something from him wrong.

Solution: lima soln

Here’s this week’s question, adapted from Gary Becker.

A popular seafood restaurant does not take reservations, and every day it has long queues for tables during prime hours. Almost directly across the street is another seafood restaurant with comparable food, slightly higher prices, and similar service and other amenities. Yet this restaurant has many empty seats most of the time.

Why doesn’t the popular restaurant raise prices, which reduces the queue for seats but expands profits?

Check back for the solution next week!