Table 16-3
Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the demand for this service. Assume that each person surveyed demands only one hour of pet sitting services per period. Table 16-3 above shows a portion of her survey results.
-Refer to Table 16-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she charges each customer according to his or her willingness to pay instead of a uniform price of $7. Which of the following statements is true?
A) Julie is worse off because the demand for her services is reduced.
B) Julie has converted the consumer surplus (from a uniform price) into economic profit.
C) Julie's customers are better off because their consumer surplus has increased.
D) Julie has converted the producer surplus (from a uniform price) into consumer surplus.

Question

Table 16-3
  Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the demand for this service. Assume that each person surveyed demands only one hour of pet sitting services per period. Table 16-3 above shows a portion of her survey results.
-Refer to Table 16-3. Suppose Julie's marginal cost of providing this service is constant at $7 and she charges each customer according to his or her willingness to pay instead of a uniform price of $7. Which of the following statements is true?
A) Julie is worse off because the demand for her services is reduced. 
B) Julie has converted the consumer surplus (from a uniform price) into economic profit. 
C) Julie's customers are better off because their consumer surplus has increased. 
D) Julie has converted the producer surplus (from a uniform price) into consumer surplus.

Quizplus · Accepted Answer

By charging each customer according to their willingness to pay, Julie is able to capture the consumer surplus as economic profit, thus converting it from consumer surplus to producer surplus. Therefore, she will be able to make more profit and be better off than if she had charged a uniform price of $7. While some customers may have a reduced demand for her services if their willingness to pay is lower, overall Julie's profit should increase. Therefore, statement B is correct. Statement A is incorrect because Julie's profit should increase rather than decrease. Statement C is incorrect because the customer surplus has been converted into producer surplus. Statement D is incorrect because the producer surplus has been converted into economic profit rather than consumer surplus.

Table 16-3 Julie Plans to Start a Pet-Sitting Service. She