Oscar has owned a Ford automobile dealership for over 25 years. Since he has been heavily involved in the sales of cars, Oscar believes that there are 3 different types of customers with the following willingness to pays: Sunroof Navigation SystemCustomer A $3,000 $1,200Customer B $1,800 $600Customer C $150 $1,800 Although not realistic, assume that incremental costs are $0. As the owner of the dealerships, Oscar has the final say on pricing for each customer. Suppose that Oscar knows the willingness to pay of Customer A, B and C as soon as he meets them. What price should Oscar charge to each customer to maximize profits? What is the total amount of profits for the 3 customers and what is the total amount of consumer surplus for the 3 customers? Show your calculations.

When a firm or owner charge different prices from the customers for the identical commodity is…

Answered: As the owner of the dealerships, Oscar…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 3MC

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Oscar has owned a Ford automobile dealership for over 25 years. Since he has been heavily involved in the sales of cars, Oscar believes that there are 3 different types of customers with the following willingness to pays:

Sunroof Navigation System

Customer A $3,000 $1,200

Customer B $1,800 $600

Customer C $150 $1,800

Although not realistic, assume that incremental costs are $0.

As the owner of the dealerships, Oscar has the final say on pricing for each customer. Suppose that Oscar knows the willingness to pay of Customer A, B and C as soon as he meets them. What price should Oscar charge to each customer to maximize profits? What is the total amount of profits for the 3 customers and what is the total amount of consumer surplus for the 3 customers? Show your calculations.

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