A seller faces two buyers: Big and Small. The seller knows the following willingness to pay...

A seller faces two buyers: Big and Small. The seller knows the following willingness to pay values: Big is willing to pay $10 for one unit, $5 for a second unit, $2 for a third unit, and does not want more than three units; Small is willing to pay $6 for one unit and does not want more than one unit. Assume the seller cannot distinguish which buyer is Big and which buyer is Small. Assume resale is impossible. What price menu maximizes the seller's revenue?

Buyer's choice: A package of 1 unit for $6 or a package of 3 units for $13. Why is this answer?

Solutions

Expert Solution

Answer:

He will sell a single unit for $6. As the seller doesn't know which seller is big and which is small so he can't afford to lose a customer anything at the price of $10 . So that he can attract both the consumer So the maximum he can charge for a product is $6. At that price the package will be ($6 + $5 + $2 ) $13.

Hence correct answer is:

A package of 1 unit for $6 or a package of 3 units for $13.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

A seller faces two buyers. The big buyer has inverse demand P = 15 - Q...

A seller faces two buyers. The big buyer has inverse demand P = 15 - Q and the small buyer has inverse demand P = 10 - Q. The seller knows these inverse demands but cannot tell in advance which buyer is big and which is small. Assume resale is impossible. Marginal cost is constant at $1. Which pricing strategy maximizes producer's surplus? Buyer's choice: Pay a membership fee of $8 followed by a constant price per unit of $6,...

table 7-2 21. This table refers to five possible buyers' willingness to pay for a case...

table 7-2 21. This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. Buyer Willingness To Pay David $8.50 Laura $7.00 Megan $5.50 Mallory $4.00 Audrey $3.50 Refer to Table 7-2. Which of the following is not true? a. At a price of $9.00, no buyer is willing to purchase Vanilla Coke. b. At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not buying one. c. At...

Explain how buyers’ willingness to pay, consumer surplus, and the demand curve are related. Explain how...

Explain how buyers’ willingness to pay, consumer surplus, and the demand curve are related. Explain how sellers’ costs, producer surplus, and the supply curve are related.

Students are potential buyers of editing services for papers they write. Students A-G have Willingness-to-Pay for...

Students are potential buyers of editing services for papers they write. Students A-G have Willingness-to-Pay for revisions as follows: Student WTP($) A 15 B 13 C 11 D9 E7 F6 G4 H2 Suppose that the opportunity cost of editing is a constant $5 (MC=ATC=$5) and that there are many potential suppliers of editing services who are price-takers. What will the equilibrium price and quantity of editing services (how many papers will be edited at what price?). Why? What are consumer,...

For a freely provided public good, a consumer's willingness to pay for a small increase in...

For a freely provided public good, a consumer's willingness to pay for a small increase in the good or willingness to accept payment for a small decrease in the good will provide approximately the same value for the change in consumer surplus. Identify is the statement is true and explain why.

Total 20pts. Suppose the firm knows that, there are two types of buyers: ?? = 100...

Total 20pts. Suppose the firm knows that, there are two types of buyers: ?? = 100 − 4?, ?? = 400 − 2?. The firm’s ATC=MC=5. a) Suppose the firm operates as a single price monopoly (the same price in both markets), what will be the market price, market quantity, and profit? (HINT: You need to find market demand for both type a and type B, Q=Qa+Qb, then solve! Draw diagram for yourself.) (3pts) b) What will be consumer surplus,...

1.The data above represent the willingness to pay (WTP) and seller cost (SC) data for a flu shot market.

BuyerWTPSellerSCAbe20Vlad24Boris40Wang18Carla60Xilla12Deirdre80Ying6Ezra100Zenobia01.The data above represent the willingness to pay (WTP) and seller cost (SC) data for a flu shot market.Each potential buyer is willing to purchase one flu shot if the price is below their WTP or no flu shot if the price is above their WTP.Each potential seller is willing to sell one flu shot if the price is above their SC or no flu shot if the price is below their SC.A price of $22 will produce an equilibrium...

2. Assume the following two demand curves: Marginal Willingness to Pay = 18 - .45 Q...

2. Assume the following two demand curves: Marginal Willingness to Pay = 18 - .45 Q Marginal Willingness to Pay = 26 – 3 Q Solve for the following: a)Start each curve at a price of $5 and increase the price to $7.50, what is the percent change in quantity demanded on each curve (hint: watch your signs) b)Find the elasticity of each of these curves at this price change. c) Are (A) and (B) elastic or inelastic. d) Describe...

The following table describes the willingness to pay by customers for the services of a telecommunications...

The following table describes the willingness to pay by customers for the services of a telecommunications company. To keep things simple, you can assume that there is just one customer of each type and the firm cannot tell which customer type an individual person is. You can also assume that even if a person gets no consumer surplus, they will still buy the product. The marginal cost to the firm of supplying each type of service is zero; all costs...

Consider a seller who must sell a single private value good. There are two potential buyers,...

Consider a seller who must sell a single private value good. There are two potential buyers, each with a valuation that is drawn independently and uniformly from the interval [0, 1]. The seller will offer the good using a second-price sealed-bid auction, but he can set a “reserve price” ofr ≥ 0 that modifies the rules of the auction as follows. If both bids are below r then neither bidder obtains the good and it is destroyed. If both bids...

Subjects