Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 30

The numerical coffee shop example assumed 100 consumers of each type. Suppose instead there are only 40 low-type consumers.
1. Show that the shop's total profits under asymmetric information when it sells a triple-shot cup to high types and a single-shot cup to low types is at best $290.
2. Show that the shop can earn more if it removes the small cup from the menu entirely and just serves high types with a large cup.