Willingness to pay (per month) This table shows the willingness to pay of the on

Question

Willingness to pay (per month)

This table shows the willingness to pay of the only three potential customers of a firm that runs both a weight room and an indoor swimming pool. The weight room and pool each have a constant marginal cost of $20 per month. Which of the following pricing strategies yields the highest producer surplus?

$60 for the weight room, $140 for the pool, or $175 for both

$50 for the weight room, $125 for the pool, or $165 for both

$25 for the weight room, $50 for the pool, or $70 for both

$60 for the weight room, $130 for the pool, or $175 for both

Willingness to pay (per month)

Weight machines Indoor pool Abe $60 $50 Betty 50 125 Chris 25 140

Explanation / Answer

1st and 4th both will have same producer surplus of $135 where all three customer will be able to avail either one or both the services as per their willingness.

Weight Room Pool Both Marginal Cost of both Producer Surplus $60 140 175 -40 135 Max $50 125 165 -40 125 $25 50 70 -40 30 $60 130 175 -40 135 Max

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