Why is non-members have no surplus? 4. (23 points) Steve sells specialist sports

Question

Why is non-members have no surplus?

4. (23 points) Steve sells specialist sports equipment. The following table shows the willingness to pay of 5 potential customers for a particular piece of equipment. Buyer Identifier Willingness to pay ($) e u Member of the Sports Club No Yes Yes No Yes The cost to Steve of selling this equipment is $2 per unit. a. In the social optimum buyers abcde would be $_2. would be served and the price 3 3 12 Suppose Steve cannot identify buyers but knows the distribution of their willingness to pay. Complete the following Table (3 points) and use that information to answer the following questions (5 points): Price Number of Sales Total Revenue Marginal Revenue b. The profit maximising price is $4 C. Total profits are $__6 d. The customers served are _ABC_| e. Total consumer surplus is $__3 f. Total surplus is $_9 2 N Now suppose Steve knows the distribution of willingness to pay of the members and non-members of the Sports Club. Complete the following tables (5 points) and use that information to answer the following questions (8 points):

Explanation / Answer

In question l (L) we get that the answer is NO. It means the non-members are not gaining from this price discrimination. The price discrimination is the members are paying $4 (Equilibrium price for members) and non members are paying $6 (Equilibrium price for non-members). Now from this price discrimination non-members are not gaining any surplus. Because the price is 6 and the willingness to pay for first non-member customer is 6. So 6-6 =0. There is no surplus. Therefore no gain. The non-members could have gain if equilibrium price be $3 then they could have earn the consumer surplus 6-3 =3. But as the equilibrium price is 6 and there is one buyer i.e the first one that is why there is no surplus. Because the first non-member customer is gaining no surplus in price 6.

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