Question

WTP= willing to pay

1.What is the relationship between WTP and the actual price that a buyer pays for a product? Can the actual price be greater than WTP? Can it be lower than WTP? Why/why not?

2.What are some things a firm might do to increase buyer WTP for its products relative to buyer WTP of its rivals’ products? What is a real world example of a firm doing something that can be understood as an

What are some things a firm might do to increase buyer WTP for its products relative to buyer WTP of its rivals’ products? What is a real world example of a firm doing something that can be understood as an attempt to increase buyer WTP?

3. What are some things a firm might do to reduce the costs it faces relative to its rivals? What is a real world example of a firm doing something that can be understood as an attempt to reduce the costs it faces relative to its rivals?

attempt to increase buyer WTP?

3. What are some things a firm might do to reduce the costs it faces relative to its rivals? What is a real world example of a firm doing something that can be understood as an attempt to reduce the costs it faces relative to its rivals?

Answer 1

Answer:Willing to pay is the maximum price which consumer wants to to pay for a particular good or service whereas actual price is the market price for that good or service.

Consumer surplus is the difference between maximum price a person is willing to pay for a good or service and its market price. Actual price can be greater that WTP. For example, suppose a good is prestigious good or a particular good that is not availabe easily then often consumer pay more than his/her willingness.

WTP is the maximum amount that a consumer is willing to pay and a rational consumer always pay equal to or less then the WTP for a good and services.Consumer pay more then WTP in some exceptional cases only.