Answer to Question #179956 in Microeconomics for SMK

Question

Suppose you have a firm that produces a product that is indivisible at a constant

marginal cost of £42. Currently, you have 12 customers. Each of them buys at most

one unit of the product. Below are the valuations that these customers have;

£30, £36, £45, £48, £51, £57, £66, £75, £78, £81, £90, £93

a) If you charge a single price, what price should you charge? What is your total

profit? (5 MARKS)

b) Do you think there are customers who are currently not buying the product?

Do you think there are customers you could sell the good at a price that would

make both of you (seller and customer) better off? Explain you answer clearly.

(10 MARKS)

c) Suppose you want to charge your customers using perfect price

discrimination. Which customers do you sell to, how much do you charge?

What is the profit (if any)? (15 MARKS)

Answer 1

a)$P=45$

Profit=$\frac{1}{2}\times(45-30)\times(3-1)=15$

b)Yes. There are customers who are currently not buying the product.

Yes. There are customers you could sell the good at a price that would make both of you (seller and customer) better off.

For the trade to be efficient, the seller should charge the price equal to the marginal cost.

d) 12th customer

Profit=$\frac{1}{2}\times(93-30)\times(12-2)=346.5$