Joss is a marketing consultant Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report. Iris is willing to pay $500 for the service while Daphne is willing to pay $800. Suppose that the opportunity cost of Joss's time is $1, 200. Assume that Iris and Daphne do not know each other. Which of the following statements is true?

(A) Joss should charge each customer $600, that way he will earn his opportunity cost and it will be fair to both Iris and Daphne.

(B) Joss should charge Iris $500 and Daphne no more than $700, that way he earns his opportunity cost and there is no loss in economic surplus.

(C) Joss should charge Iris $500 and Daphne $800, that way economic surplus is maximized.

(D) Joss should charge Iris $500 but charging Daphne $800 is unfair because it allows Joss to earn more than his opportunity cost.

Question

Business

Tyshawn Evans

17 August, 04:51

Joss is a marketing consultant Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report. Iris is willing to pay $500 for the service while Daphne is willing to pay $800. Suppose that the opportunity cost of Joss's time is $1, 200. Assume that Iris and Daphne do not know each other. Which of the following statements is true?

(A) Joss should charge each customer $600, that way he will earn his opportunity cost and it will be fair to both Iris and Daphne.

(B) Joss should charge Iris $500 and Daphne no more than $700, that way he earns his opportunity cost and there is no loss in economic surplus.

(C) Joss should charge Iris $500 and Daphne $800, that way economic surplus is maximized.

(D) Joss should charge Iris $500 but charging Daphne $800 is unfair because it allows Joss to earn more than his opportunity cost.

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Answers (1)

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Peter Wilkerson · Answer 1

(C) Joss should charge Iris $500 and Daphne $800, that way economic surplus is maximized.

Explanation:

Assuming information asymmetries in the market, and Iris and Daphne are incapable of compare their willingness to pay against the average price of the market for this type of service, C is true since Joss maximize the economic surplus by increasing his productivity using the time better than his opportunity cost.