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 Tots Poses, expects to encounter an average of eight customers per day, each with a reservation price shown in the following table. The total cost of each portrait is $12.
Reservation price
Customer($ per photo)
1………………………………50
2………………………………46
3………………………………42
4………………………………38
5………………………………34
6………………………………30
7………………………………26
8………………………………22
a. How much should George charge if he must charge a single price to all customers? 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. What is the socially efficient number of portraits?
d. George is very experienced in the business and knows the reservation price of each of his customers. If he is allowed to charge any price he likes to any consumer, how many portraits will he produce each day and how much economic profit will he earn?
e. In this case, how much consumer surplus is generated each day?