Question

ork Ch 8.2 (and 9) 2102 SP19. Saved Suzanne owns the only kayak rental company in a small resort town. Every day there are 8 people potentially interested in renting a kayak, each with a reservation price shown in the table. The marginal cost to Suzanne of renting out a kayak is $20. Potential Reservation Customer Price $85 75 $65 $55 $45 $35 $25 $15 7 ook a. What is the socially efficient number of kayaks for Suzanne to rent out each day? kayaks b. If Suzanne acts as a single-price monopolist, then how many kayaks will she rent out each day, and what price will she charge for each kayak? kayaks per day at a price of $55 per kayak c. Now suppose Suzanne offers to give a discount to customers who fill out a customer satisfaction survey. People with reservation prices above $45 will never fill out the survey, while those with reservation prices of $45 or less will always fill out the survey. How many kayaks will Suzanne rent out each day? What price should she charge to people who do not fill out the survey? And what price should she charge to people who do fill out the survey Price charged to those who don't fill out the survey$55per kayak Price charged to those who do fill out the survey: $per kayak Suzanne should rent out kayaks total. d. is consumer surplus higher when Suzanne acts as a single-price monopolist (part b) or when Suzan price discriminates (part c) Consumer surplus is higher when Suzanne acts as a single-price monopolist

Answer 1

a.������ The socially efficient number of kayaks is when maximum number of individuals get kayaks while at the same time gets to cover her cost of $20 per kayak. Therefore at price of $25 per kayak, she achieves this which gives kayaks to 7 individuals (as there are 7 with reservation price at $ 25 or above) b. As a single price monopolist she will rent out $ kayaks at a price of $55 per kayak as she achieves the maximum profit in this case which is 55 times 4 - 20 times 4 = $140 while at any other price, her profit is less Rightarrow At 3 kayaks of $ 65 Rightarrow 65 times 3 - 20 times 3 = $ 135 At 2 kayaks of $ 75 Rightarrow 75 times 2 - 20 times 2 = $ 110 At 1 kayaks of $ 85 Rightarrow 85 - 20 = $ 65 At 5 kayaks of $ 45 Rightarrow 45 times 5 - 20 times 5 = $ 125