Mowgli works as a massage therapist on evenings and weekends. He has no fixed costs, and his cost of giving a massage is $120. His
Mowgli works as a massage therapist on evenings and weekends. He has no fixed costs, and his cost of giving a massage is $120. His business is the only one providing massage services in Mowgli's neighborhood. He has ten potential clients each week, and their willingness to pay for massages is given in the table below. Based on this info, we have computed Mowgli's Total & Marginal Revenues from serving the clients: Clients Willingness to Pay (WTP) Total Revenue (Massages per week) Marginal Revenue ($ per massage) 0 0 200 200 200 2 190 380 180 3 180 540 160 170 680 140 160 800 120 150 900 100 140 980 80 8 130 1040 60 9 120 1080 40 10 110 1100 20 If Mowgli has to charge a single price from all of his clients, he will maximize his profits by giving [ Select ] massages. This is [Select ] than the efficient number, which is [Select ] massages.If Mowgli has to charge a single price from all of his clients, he will maximize his prots by giving [59'9\"] V massages. This is [Select] V than the efcient number, which is [59'9\"] V massages. If Mowgli can practice perfect price discrimination, he should give [59'9\"] V massages. Now. suppose Mowgli cannot practice perfect price discrimination. But he has somehow gured out how to separate his clients into two groups - those who are willing to pay at least $170 for a massage [the "premium" sub-market), and those who are not l[the "non-premium" sub-market). In otherwords, the two sub-markets would look as follows: "Premium" Submarket "NonPremium" Submarket Clients WTP Clients WTP (Massages per week) (35 per massage) {Massages per week) [35 per massage} 1 200 1 160 2 190 2 1 50 3 180 3 140 4 170 4 130 5 120 6 1 10 Mowgli's cost of giving a massage stays the same at $120. In order to maximize profits under this scheme of market separation, Mowgli should charge a price of [ Select ] in the premium sub-market, and a price of [ Select ] V in the non-premium sub-market
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