Question

Barely Legal Seafoods, a monopolist selling clam chowder, sells two different bowl sizes, large and small. What strategy should he use to extract the most surplus possible out of customers who come in two types, regular and big eaters, when he cannot distinguish between the two types by observation?
A.Group of answer choices​Distort the size of the small bowl downward to make it less attractive to the big eaters, allowing him to raise the price of the large bowl.
B. ​Distort the size of the small bowl upward to make it harder for regular eaters to separate themselves from big eaters.
​C. Distort the size of the large bowl downward to make it attractive to both big and regular eaters.
D. None of the other provided answers is correct.
​E. Distort the size of the large bowl upward to make big eaters less likely to consume the small bowl.
 

Answer 1

Because he cannot distinguish between regular and big eaters, the maximum surplus can be achieved only when maximum amount would be sold and because you actually don't know which person belongs to which category, if you reduce the size of the small bowl further, what happens is that even the regular buyer might find it not enough to purchase a small bowl So that he would actually go for bigger bowl even if it is a bit more for him. So that in this way you actually allow more people to buy bigger bowls with which you can increase the price of bigger bowls result of which maximum surplus can be captured and that is the reason

Option (A) is the answer

If you increase the size of the small bowl what happens is that, when a larger eater might find it required to purchase a small one to that people spend less money with which consumers surplus will be maximized but not producer surplus.

Therefore (B) is wrong

If you reduce the size of larger ball there can be a chance that even the large eater find less difference between small bowl and big bowl so that he would prefer the small one based on the budget constraint because the price of smaller one would be less and this allows the increase of consumer surplus but not producer surplus

Therefore (C) is wrong

If you increase the size of larger bowls, people would tend to take up larger ones at the same price result of which the producer surplus is reduced

Therefore (E) is wrong and (D) is wrong because there's a correct option in the question.