Ivy College requires term papers in many classes, and every paper must conform t
ID: 1126093 • Letter: I
Question
Ivy College requires term papers in many classes, and every paper must conform to "The Chicago Manual of Style." Selena is a student at Ivy College who runs a copyediting business on the side: students bring her their term papers and she edits them in keeping with the high standards demanded by her college. She is the only person around who is trusted to do the job right. Selena knows her customers well and knows how much each person is willing to pay for her services. She ranks her customers according to their reservation price. (Here reservation price just means the maximum price the student is willing to pay for the copyediting) Reservation Price (Dollars) 12 Student Alice Billy Callum Declan Eli Fiorina Gloria Hannah 10 9 1.7. Selena estimates her marginal cost of copyediting a paper at $5. Because she knows the reservation prices of each potential customer, she decides to be a perfectly price-discriminating monopolist and makes each student an individualized take-it-or- leave-it offer equal to his or her reservation price. What is the consumer surplus of all the customers she serves? Please enter a whole number, with no decimal pointExplanation / Answer
A perfect price discriminating monopolist will charge a price equal to Marginal cost.
Price = MC = $5
Those consumers will buy whose reservation price is higher than Price, therefore the buyers who will buy are: Alice, Billy, Callum, Declum, Elli, Florina and Gloria.
Total consumer surplus ($) = Reservation price - Market price
= (12 - 5) + (11 - 5) + (10 - 5) + (9 - 5) + (8 - 5) + (7 - 5) + (6 - 5)
= 7 + 6 + 5 + 4 + 3 + 2 + 1
= 28
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