Suppose a Restaurant Is Trying to Determine How Much to Charge

question 7

Essay

Suppose a restaurant is trying to determine how much to charge for a bowl of chili, and decides to run an experiment to see how much its customers are willing to pay by allowing them to set their own price for this menu item.
a.Is charging a customer the price he or she is willing to pay for the bowl of chili an example of price discrimination? Briefly explain.
b.What is it called when a firm knows every consumer's willingness to pay, and can charge every consumer a different price? What happens to consumer surplus in this situation?

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Definitions:

Control Group

A group in an experiment that does not receive the treatment or intervention and is used as a benchmark to measure how the other tested subjects do.

Fake Cigarettes

Products designed to mimic the appearance and sometimes the sensation of smoking tobacco, often used as aids to quit smoking.

Placebo

An inert substance or treatment with no therapeutic value, used in the control group of an experiment.

Antianxiety Drug

Medication prescribed to relieve anxiety symptoms, often by affecting neurotransmitter levels in the brain, including benzodiazepines and SSRIs.