Table 8-3
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 8-3 above shows a portion of her survey results.
-Refer to Table 8-3.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?

Question

Table 8-3
  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 8-3 above shows a portion of her survey results.
-Refer to Table 8-3.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?

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 price that a customer is willing to pay is $10, so Julie will charge $10 for the first hour of service. The next highest price that a customer is willing to pay is $9, so Julie will charge $9 for the second hour of service, and so on. Julie will continue to charge lower prices 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 of service, $9 for the second hour of service, $8 for the third hour of service, and $7 for the fourth hour of service. She will not provide any more hours of service because her marginal cost is $7.Julie's total revenue will be $10 + $9 + $8 + $7 = $34. She will provide 4 hours of service.

Table 8-3 Julie Plans to Start a Pet-Sitting Service. She