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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?


Definitions:

Annual Depreciation

The yearly accounting charge representing the cost allocation of the value of an asset over its useful life.

Common Size Balance Sheet

A balance sheet where all entries are expressed as a percentage of total assets, facilitating comparison across time and companies.

Total Assets

The sum of all assets owned by an entity, including cash, investments, inventory, and fixed assets.

Total Equity

The total value of a company's assets minus its total liabilities, representing the owners' equity in the company.

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