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Frank's Foto is a retailer. The buyer for Frank's Foto Corporate buys camera's for $300 each...

Frank's Foto is a retailer. The buyer for Frank's Foto Corporate buys camera's for $300 each from a manufacturer A whose cost of goods sold is 60% of the manufacturer’s selling price. Two market segments exist in the retail market. One segment has 50 consumers, each with a reservation price of $400. A second segment has 100 consumers, each with a reservation price of $500. Frank's Foto sets a single market price of $450. What is the profit for Frank's Foto from these transactions? What is the total consumer surplus? Show Your Work

What is Frank's Foto's total profit?

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Answer #1

Cost Price of the camera to Frank Foto = $300.

Price set to sell the camera = $450.

So profit per camera = $450 - $300 = $150

When the price is set at $450, the customers whose reservation price is $400 will not buy the camera.

The consumer surplus for the customers who have a reservation price of $500 = $500 - $450 = $50

Total Consumer Surplus = Number of consumers in that segment * Consumer Surplus per person = 100 * 50 = $5000

Frank Foto's Total Profit = 100 * (450 - 300) = $15,000

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