Consider a firm with market power that sells suits. The firm has two types of cu

Question

Consider a firm with market power that sells suits. The firm has two types of customers, A and B. There are an equal number of customers of each type. Type-A customers are willing to pay up to $100 for a coat and up to $50 for a pair of pants. Type-B customers are willing to pay up to $75 for a coat and up to $65 for a pair of pants. Suppose for simplicity that the marginal cost of production is zero. If the firm engages in first-degree price discrimination, then it will

A. charge both types of customers $150 for a suit.
B. charge both types of customers $140 for a suit.
C. charge type-A customers $150 for a suit, and type-B customers $140 for a suit.
D. charge type-A customers $175 for a suit, and type-B customers $115 for a suit.

Explanation / Answer

according to first degree discrimination the price varies according to how much a customer is willing ot pay The answer is C because: customer A is willing to pay in total= 100 for coat + 50 for pants = $150 Customer B is willing to pa in total = 75 for coat + 65 for pants = $140

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.