Question

Suppose your elasticity of demand for your parking lot spaces is –2, and price is $8 per day. if your mc is zero, and your capacity is 80% full at 9
a.m. over the last month, are you optimizing?

Answer 1

The answer to the question above is "no, the business is not optimizing" according to the information shown on the question above. In this situation, we have the greater marginal revenue (4=8*(1-1/2)) than the marginal cost (0)and the business is not in its full capacity. The parking lot business can increase its marginal cost to achieve its full capacity to gain more profit.