Consider the following Demand Schedule for an individual customer. Use this schedule to answer the questions below.

Willingness to pay	Quantity Demanded
$20	1
$18	2
$14	3
$8	4
$3	5

This demand schedule shows that the customer is willing to pay up to $20 for the first unit, $18 for the second unit, $14 for the third unit, and so on. This model assumes that the customer purchases units as long as the amount the customer is willing to pay for the unit is higher than the market price. For example, if the market price equals $15 per unit, the consumer would purchase two units.

a. Consider the case where the market price equals $7.99 per unit. How many units will the customer purchase? How much revenue does the firm earn in this example?

What is the most the consumer is willing to pay for the first unit? Consumer surplus equals the difference between what consumers are willing to pay and the amount they actually pay. How much consumer surplus does the consumer receive from the first unit when the price equals $7.99?

How much consumer surplus does the consumer receive from the second unit when the price equals $7.99?

How much consumer surplus does the consumer receive from the third unit when the price equals $7.99?

How much consumer surplus does the consumer receive from the fourth unit when the price equals $7.99?

How much consumer surplus does the consumer receive from the fourunits purchased when the price equals $7.99?

b. Consider the case where the firm can charge consumers the amount they are willing to pay for each unit. How much revenue does the firm earn if it sells four units in this case?

Assume that the cost of producing each unit equals $7, compare the profit the firm earns when it charges $7.99 per unit with the profit the firm earns when it charges customers the amount they are willing to pay for each unit.

c. Consider the case where the firm places 4 units in a box. Assume that the firm only sells boxes of four units; consumers cannot buy individual units. What is the maximum amount of money consumers are willing to pay for a box of four units?

d. Discuss the basic model where a consumer chooses to purchase good when the amount of money the consumer is willing to pay exceeds price. Does this characterization of consumer behavior reflect reality? Explain your reasoning. Is it reasonable to assume that the amount consumers are willing to pay for an additional unit falls as the number of units consumed rises? Provide an example that does not necessarily fit this simple model. Explain how consumers make decisions in your example.

e. Provide two examples of how firms gather information on the amount consumers are willing to pay for goods and services. You may include situations where firms are consumers and buy inputs from other firms. Explain how firms gather this information.