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 $1200.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 maximised.
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 each customer their willingness to pay, which in this case is $500 for Iris and $800 for Daphne. This way, Joss maximizes economic surplus and earns a profit of $300 ($800 - $500) for his services to Daphne. Charging a price higher than the willingness to pay would result in lost economic surplus, while charging a lower price would mean a missed opportunity to earn a profit. Therefore, option C is the best choice.

Joss Is a Marketing Consultant