Question 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 $8. Customer 2 3 1 5 Reservation price ($ per photo) 50 46 42 38 34 30 26 22 7 a. Suppose George is permitted to charge two prices. He knows that customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them. At what level should George set the list price of a portrait? At what level should be set the discount price? How many photo portraits will he sell at each price? List price of a portraits Number of portraits to be sold at the list price portraits Discount price of a portrait $ Number of portraits to be sold at the discounted price: portraits b. In this case, what is George's economic profit and how much consumer surplus is generated each day? Economic profit $ Consumer surplus: $
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Transcribed Image Text: 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 $8. Customer 2 3 1 5 Reservation price ($ per photo) 50 46 42 38 34 30 26 22 7 a. Suppose George is permitted to charge two prices. He knows that customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them. At what level should George set the list price of a portrait? At what level should be set the discount price? How many photo portraits will he sell at each price? List price of a portraits Number of portraits to be sold at the list price portraits Discount price of a portrait $ Number of portraits to be sold at the discounted price: portraits b. In this case, what is George's economic profit and how much consumer surplus is generated each day? Economic profit $ Consumer surplus: $
More Transcribed Image Text: 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 $8. Customer 2 3 1 5 Reservation price ($ per photo) 50 46 42 38 34 30 26 22 7 a. Suppose George is permitted to charge two prices. He knows that customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them. At what level should George set the list price of a portrait? At what level should be set the discount price? How many photo portraits will he sell at each price? List price of a portraits Number of portraits to be sold at the list price portraits Discount price of a portrait $ Number of portraits to be sold at the discounted price: portraits b. In this case, what is George's economic profit and how much consumer surplus is generated each day? Economic profit $ Consumer surplus: $
Community Answer
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(a) The ability to offer a rebate coupon allow george to divide his market in two sub-market. The table to total and Marginal revenue for the lisit-price sub morket are as folloues:-Nour, george should set the price at $34 and sell 5 photos per day in the Marketi. In the ... See the full answer