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:

Economic Costs

The total expenses incurred in producing a good or service, including opportunity costs.

Total Revenue

The overall amount of money earned by a business from the sale of its goods or services, calculated as the product of price times quantity sold.

Economic Profits

Profits exceeding the opportunity costs of a firm, representing earnings beyond the breakeven point.

Economic Costs

The total value of all resources used to produce a good or service, including both explicit and implicit costs.