There are seven consumers, each of whom is hungry for exactly one Butterfinger. The consumers' maximum willingness to pay is given in the table below:
a. Given that each consumer wants one and only one Butterfinger, draw the demand curve for Butterfingers.
b. If Butterfingers are priced at $7, only one will be sold. Who buys that Butterfinger? Label the point at $7 on the demand curve with the name of that buyer.
c. If Butterfingers are priced at $6, a second buyer will be priced into the market. Who is that buyer? Label the point at $6 on the demand curve with the name of that buyer.
d. Continue to label each point on the demand curve with the name of the buyer represented by that point.
e. Suppose that you are a monopoly seller of Butterfingers, which you can produce at a constant marginal and average total cost of $2. Suppose you charge every customer the same price for Butterfingers. What price should you set to maximize your profit? How many Butterfingers will you sell? Calculate your profit. Calculate the consumer surplus received by the buyers. Calculate the deadweight loss.
f. Suppose that every customer that comes into your Butterfinger store has their maximum willingness to pay displayed in neon on their foreheads. You decide to use this information to increase your profit by practicing first degree price discrimination. How many Butterfingers will you sell? Calculate your profit. Calculate the consumer surplus received by the buyers. Calculate the deadweight loss.
g. Where does the consumer surplus go when you begin price discriminating?
h. What happens to the deadweight loss?