Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
-Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay.What is Julie's total revenue and how many hours of service will be purchased?
A)4 hours and her total revenue = $39
B)4 hours and her total revenue = $28
C)1 hour and her total revenue = $7
D)5 hours and her total revenue = $35

Question

Table 16-1
  Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
-Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay.What is Julie's total revenue and how many hours of service will be purchased?
A)4 hours and her total revenue = $39 
B)4 hours and her total revenue = $28 
C)1 hour and her total revenue = $7 
D)5 hours and her total revenue = $35

Quizplus · Accepted Answer

Julie's marginal cost is constant at $7, so she will charge each customer according to his or her willingness to pay. The highest willingness to pay is $10, so Julie will charge $10 for the first hour of service. The next highest willingness to pay is $9, so Julie will charge $9 for the second hour of service, and so on. Julie will continue to charge less for each additional hour of service until she reaches her marginal cost of $7. At this point, she will stop providing service.In this case, Julie will charge $10 for the first hour, $9 for the second hour, $8 for the third hour, and $7 for the fourth hour. This means that Julie's total revenue will be $10 + $9 + $8 + $7 = $34. Julie will provide 4 hours of service because her marginal cost is $7, and she will continue to provide service until her marginal cost equals her willingness to pay.

Table 16-1 Julie Plans to Start a Pet-Sitting Service.She Surveyed