A private-garage owner has identified two distinct market segments: short-term parkers and all-day parkers with respective demand curves of P S = 3 – (Q S /200) and P C = 2 – (Q C /200). Here P is the average hourly rate and Q is the number of cars parked at this price. The garage owner is considering charging different prices (on a per-hour basis) for short-term parking and all-day parking. The capacity of the garage is 600 cars, and the cost associated with adding extra cars in the garage (up to this limit) is negligible.
Given these facts, what is the owner’s appropriate objective? How can he ensure that members of each market segment effectively pay a different hourly price?
*Starred problems are more challenging.
What price should he charge for each type of parker? How many of each type of parker will use the garage at these prices? Will the garage be full?
Answer the questions in part (b) assuming the garage capacity is 400 cars.