Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The table below shows the reservation prices of the eight students enrolled in the class. $$\begin{array} { | c | c | }
\hline \text { Student } & \begin{array} { c }
\text { Reservation Price } \
\text { (\$/Book) }
\end{array} \
\hline \mathrm { Q } & 60 \
\hline \mathrm { R } & 54 \
\hline \mathrm { S } & 48 \
\hline \mathrm { T } & 42 \
\hline \mathrm { U } & 36 \
\hline \mathrm { V } & 30 \
\hline \mathrm { W } & 24 \
\hline \mathrm { X } & 18 \
\hline
\end{array}$$ If Campus Books is permitted to charge 2 prices, and the bookstore knows customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then the bookstore will set the list price of the book to be _____ and the discounted price of the book to be ______.

Question

Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The table below shows the reservation prices of the eight students enrolled in the class. $$\begin{array} { | c | c | } 
\hline \text { Student } & \begin{array} { c } 
\text { Reservation Price } \
\text { (\$/Book) }
\end{array} \
\hline \mathrm { Q } & 60 \
\hline \mathrm { R } & 54 \
\hline \mathrm { S } & 48 \
\hline \mathrm { T } & 42 \
\hline \mathrm { U } & 36 \
\hline \mathrm { V } & 30 \
\hline \mathrm { W } & 24 \
\hline \mathrm { X } & 18 \
\hline
\end{array}$$ If Campus Books is permitted to charge 2 prices, and the bookstore knows customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then the bookstore will set the list price of the book to be _____ and the discounted price of the book to be ______.

Quizplus · Accepted Answer

Campus Books should set the list price at $36 because that is the highest reservation price from a customer who always uses the coupon. This way, Campus Books captures the entire surplus of customers who always use coupons.

The discounted price should be $24 because that is the reservation price of the customer with the next highest value (who does not always use the coupon). Charging this price to those who don't always use the coupon and $36 to those who always use the coupon maximizes profits.

Suppose Campus Books, a Profit-Maximizing Firm, Is the Only Supplier