Jada is a second-grader who sells lemonade on a street corner in your neighborhood. Each cup of lemonade costs Jada 20 cents to produce; she has no fixed costs. The reservation prices for the 10 people who walk by Jada’s lemonade stand each day are listed in the following table.

Person Reservation price A $ 1.00 B $0.90 C $0.80 D $ 0.70 E $0.60 F $0.50 G $0.40 H $0.30 I $0.20 J $ 0.10 Jada knows the distribution of reservation prices

(that is, she knows that one person is willing to pay

$1, another $0.90, and so on), but she does not know any specific individual’s reservation price. (LO4, LO5, LO6)

a. Calculate the marginal revenue of selling an additional cup of lemonade. (Start by figuring out the price Jada would charge if she produced only one cup of lemonade, and calculate the total revenue; then find the price Jada would charge if she sold two cups of lemonade; and so on.)

b. What is Jada’s profit-maximizing price?

c. At that price, what are Jada’s economic profit and total consumer surplus?

d. What price should Jada charge if she wants to maximize total economic surplus?

e. Now suppose Jada can tell the reservation price of each person. What price would she charge each person if she wanted to maximize profit?

Compare her profit to the total surplus calculated in part d.