A Warehouse Club Has Customers with Identical Demand Curves, Q

question 150

Multiple Choice

A warehouse club has customers with identical demand curves, Q = 100 - 5P, where Q is the annual number of merchandise units and P is the price per merchandise unit. The marginal cost of a merchandise unit is $10. If the warehouse club uses the optimal two-part tariff strategy, it will earn producer surplus of _____ per customer.

• A) $1,060
• B) $75
• C) $450
• D) $250

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Definitions:

Profit-Maximizing Level

The point at which a firm achieves the highest possible profit, where marginal revenue equals marginal cost.

Efficient

The characteristic of maximizing productivity with minimal waste, effort, or expense.

Inefficient

Describes a market or economy in which there are missed opportunities: some people could be made better off without making other people worse off.

Oligopoly

A market structure characterized by a small number of firms dominating the market, leading to limited competition and often higher prices for consumers.