Sydney sells snow globes from a cart. When the cart is located on the sidewalk near a discount store, Sydney's customers have reservation prices of $5. When Sydney's cart is located on a sidewalk in an upscale mall, wealthier customers with reservation prices of $10 buy snow globes. Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations. Total economic surplus will be maximized if Sydney:
A)alternates between the two locations and price discriminates.
B)sells only near the discount store and charges $5.
C)sells only in the upscale mall and charges $10.
D)alternates between the two locations and charges $5 at both locations.

Question

Quizplus · Accepted Answer

Given that Sydney's costs are the same at either location, Sydney's net benefit is maximized by selling the snow globes at the upscale mall because Sydney receives $10 instead of $5.

Sydney Sells Snow Globes from a Cart