Simplicity that the marginal cost of production is zero

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Reference no: EM131092965

Consider a firm with market power that sells suits. The firm has two types of customers, A and B. There are five times as many type-A customers as there are type-B customers. Type-A customers are willing to pay up to $100 for a coat and up to $50 for a pair of pants. Type-B customers are willing to pay up to $75 for a coat and up to $65 for a pair of pants. Suppose for simplicity that the marginal cost of production is zero. If the firm engages in first-degree price discrimination, then it will:

1. charge type-A customers $100 for a coat and type-B customers $65 for pants.

2. charge both types of customers $140 for a suit.

3. charge type-A customers $150 for a suit, and type-B customers $140 for a suit.

4. charge both types of customers $100 for a coat and $50 for pants.

Reference no: EM131092965

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