TotsPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price (shown in the following table). Assume George has no fixed costs, and his cost of producing each portrait is $12. a. How much should George charge if he must charge a single price to all customer? At this price, how many portraits will George produce each day? What will be his economic profit? b. How much consumer surplus is generated each day at this price? c. If George is very experienced and knows the reservation prices of each customer, how many portraits will he produce each day and how much economic profit will he earn? d. Assume George charges only 2 different prices. He know that customers with reservation prices above $30, will never use coupons and the customers with reservation prices below will always use coupons. What price should George charge for portraits and what discount should he offer on the coupon?
TotsPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price (shown in the following table). Assume George has no fixed costs, and his cost of producing each portrait is $12. a. How much should George charge if he must charge a single price to all customer? At this price, how many portraits will George produce each day? What will be his economic profit? b. How much consumer surplus is generated each day at this price? c. If George is very experienced and knows the reservation prices of each customer, how many portraits will he produce each day and how much economic profit will he earn? d. Assume George charges only 2 different prices. He know that customers with reservation prices above $30, will never use coupons and the customers with reservation prices below will always use coupons. What price should George charge for portraits and what discount should he offer on the coupon?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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TotsPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation
a. How much should George charge if he must charge a single price to all customer? At this price, how many portraits will George produce each day? What will be his economic profit?
b. How much consumer surplus is generated each day at this price?
c. If George is very experienced and knows the reservation prices of each customer, how many portraits will he produce each day and how much economic profit will he earn?
d. Assume George charges only 2 different prices. He know that customers with reservation prices above $30, will never use coupons and the customers with reservation prices below will always use coupons. What price should George charge for portraits and what discount should he offer on the coupon?
Transcribed Image Text:Customer
1
2
3 50 60 co
4
7
8
Reservation price
($ per photo)
50
46
42
38
34
30
26
22
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