Consider the following scenario to answer the following questions: The Varsity,located in downtown Atlanta,is the world's largest drive-in restaurant.Located near the Georgia Tech campus,the drive-in attracts two distinct types of customers-college students and visitors to Atlanta.The owners are considering offering a student discount of $1 off their combo meal,which is regularly priced at $9.There are 5,000 students interested in purchasing a combo meal,with a maximum willingness to pay of $8.There are 5,000 visiting customers interested in purchasing the combo meal,with a maximum willingness to pay of $9.Assume that each customer,at most,will purchase a single meal and the marginal cost is $5.
-Mirabella Creations is a custom jewelry company that specializes in unique,handmade,wearable artwork.Each piece of jewelry offered for sale is made after an extensive customer consultation that results in a one-of-a-kind piece of heirloom jewelry.To maximize profits,the firm owner should charge
A) the same price to all customers.
B) the price that the market will bear.
C) a price that will cover the firm's fixed costs.
D) a price that is close to each customer's willingness to pay.
E) a price that is competitive with mass-market jewelers available in their service area.

Question

Quizplus · Accepted Answer

Since each piece of jewelry is unique and made after extensive customer consultation, the willingness to pay of each customer is likely to be different. To maximize profits, it is best for the firm owner to charge a price that is close to each customer's willingness to pay. This strategy will allow the firm to capture more of the consumer surplus (the difference between what the customer is willing to pay and what they actually pay), which will result in higher profits.

Consider the Following Scenario to Answer the Following Questions: the Varsity,located