Suppose two types of consumers buy suits.Consumers of type A will pay $100 for a coat and $50 for pants.Consumers of type B will pay $75 for a coat and $75 for pants.The firm selling suits faces no competition and has a marginal cost of zero.If the firm can identify each consumer type and can price discriminate,what is the optimal price for a pair of pants?
A) Charge both types $150.
B) Charge both types $75.
C) Charge type A consumers $50, and type B consumers $75.
D) Charge type A consumers $50, and type B consumers $50.

Question

Quizplus · Accepted Answer

Since the firm can identify each type of consumer, it can price discriminate and charge different prices to each type. To maximize profits, the firm should charge each consumer type the highest price they are willing to pay.

Type A consumers are willing to pay $100 for a coat and $50 for pants, so the firm can charge them $50 for a pair of pants. Type B consumers are willing to pay $75 for a coat and $75 for pants, so the firm can charge them $75 for a pair of pants.

If the firm were to charge both types the same price, it would be missing out on potential profits from Type B consumers who are willing to pay a higher price for pants.

Therefore, the optimal price for a pair of pants is to charge Type A consumers $50 and Type B consumers $75.

Suppose Two Types of Consumers Buy Suits