Table 9.3 Julie plans to start a pet-sitting service.She surveyed her neighbourhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 9.3 above shows a portion of her survey results.
-Refer to Table 9.3.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges each customer according to his or her willingness to pay instead of a uniform price of $7.Which of the following statements is true?
A)Julie is worse off because the demand for her services is reduced.
B)Julie has converted the consumer surplus (from a uniform price)into economic profit.
C)Julie's customers are better off because their consumer surplus has increased.
D)Julie's has converted the producer surplus (from a uniform price)into consumer surplus.

Question

Table 9.3  Julie plans to start a pet-sitting service.She surveyed her neighbourhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 9.3 above shows a portion of her survey results.
-Refer to Table 9.3.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges each customer according to his or her willingness to pay instead of a uniform price of $7.Which of the following statements is true?
A)Julie is worse off because the demand for her services is reduced. 
B)Julie has converted the consumer surplus (from a uniform price)into economic profit. 
C)Julie's customers are better off because their consumer surplus has increased. 
D)Julie's has converted the producer surplus (from a uniform price)into consumer surplus.

Quizplus · Accepted Answer

When Julie charges each customer according to his or her willingness to pay, she is able to capture the maximum possible amount of consumer surplus as economic profit. This is because customers who are willing to pay more than $7 will end up paying more than the uniform price, while customers who are only willing to pay $7 or less will not purchase the service at all. Thus, Julie is able to extract all consumer surplus as economic profit. Therefore, option B is correct.

Table 93 Julie Plans to Start a Pet-Sitting Service