A clothing store with some market power (due perhaps to advertising, which we will study later)...

A clothing store with some market power (due perhaps to advertising, which we will study later) has two types of customers: people with very little time and lots of money, and people with lots of time and very little money. There are 100 people of each type. The people with money and no time will pay $150 for a sweater. The people with time and no money will pay only $50 for a sweater. The store can produce any number of sweaters for $30 apiece. a. What is the profit-maximizing single price for the store? What is the producer surplus? What is the DWL? b. Now consider the case where the store can separate its customers by their willingness to pay—a limited time sale that only the people with lots of time are able to take advantage of. In this situation, the store can sell to each type of consumer for their willingness to pay. Now what is the producer surplus? What is the DWL?

Expert Solution

Rahul Sunny answered 2 years ago

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