Joss is a marketing consultant.Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report.Iris is willing to pay $500 for the service while Daphne is willing to pay $800.Suppose that the opportunity cost of Joss's time is $1,200.Assume that Iris and Daphne do not know each other.Which of the following statements is true?
A)Joss should charge each customer $600; that way he will earn his opportunity cost and it will be fair to both Iris and Daphne.
B)Joss should charge Iris $500 and Daphne no more than $700; that way he earns his opportunity cost and there is no loss in economic surplus.
C)Joss should charge Iris $500 and Daphne $800; that way economic surplus is maximized.
D)Joss should charge Iris $500 but charging Daphne $800 is unfair because it allows Joss to earn more than his opportunity cost.

Question

Quizplus · Accepted Answer

Joss should charge Iris $500 and Daphne $800 because it allows economic surplus to be maximized. Economic surplus is the total benefit minus the total cost, and in this case, both Iris and Daphne are willing to pay more than Joss's opportunity cost. Therefore, charging them their respective willingness to pay values will allow Joss to earn more than his opportunity cost while also generating a maximum economic surplus for both customers. Charging both customers the same amount (as in option A) or charging Daphne less than her willingness to pay (as in option B) would not maximize economic surplus. Charging Daphne more than her willingness to pay (as in option D) is also incorrect because it would result in economic surplus being reduced.

Joss Is a Marketing Consultant