1. There are seven consumers, each of whom is hungry for exactly one Butterfinge

Question

1. There are seven consumers, each of whom is hungry for exactly one Butterfinger. The consumers' maximum willingness to pay is given in the table below: Consumer (age, gender) Maximum Willingness to Pay Marge (34, female) Homer (38, male) Lisa (6, female) Maggie (2, female) Ned (46, male) Krusty (55, male) Bart{9, male) Suppose that you are a monopoly seller of Butterfingers, which you can produce at a constant marginal and average total cost of $2.50. Suppose that every customer that comes into your Butterfinger store has their maximum willingness to pay displayed in neon on their foreheads. You decide to use this information to increase your profit by practicing first-degree price discrimination. How many Butterfingers will you sell, and what are your profits? a. 5; 12.5 b. 7; 35 c. 4; 6 d. 3; 15.5

Explanation / Answer

Since we are practicing 1st dregree PD, we will charge each individual its reservation price. So, we will sell all our goods and each the entire consumer surplus as our profit. Bu, we will carter to only those customers who are above our MC. Hence, a 5, 12.5

(7-2.5)+(6-2.5)+(5-2.5)+(4-2.5)+(3.2.5)= 12.5

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