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 $9.

a. Complete the following table.

Customer	Reservation price ($ per photo)	Total revenue ($ per day)	Marginal revenue ($ per photo)
1	50
2	46
3	42
4	38
5	34
6	30
7	26
8	22

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? _____ portraits
What will be his economic profit? $ _____ per day

b. How much consumer surplus is generated each day at this price? $ ______

c. What is the socially efficient number of portraits? _______ 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? ____ portraits.

What will his economic profit be? $_________per day

e. In this case, how much consumer surplus is generated each day? $ ____

Answer 1

A)the monopoly equilibrium will be at where MR= MC

MC=9

So equilibrium at CONSUMER 6 where MR=10( higher no of CONSUMER make MR=2 ,and Decrease profit)

So he should charge =30

He produces 6 portrait per day

Profit={30-9)*6=21*6=126

B) CONSUMER surplus of CONSUMERs 1=50-30=20

Consumer 2=46-30=16

CONSUMER 3=42-30=12

CONSUMER 4=38-30=8

Consumer 5=34-30=4

CONSUMER 6=30-30=0

Total CONSUMER surplus=20+16+12+8+4=60$

C) social efficient portrait is 8 per day.

D) 8 portrait per day

Total revenue=50+46+42+38+34+30+26+22=288

Total cost=9*8=72

Profit=288-72=216

E) zero CONSUMER surplus each day.