Question 2

There are 8 potential buyers (A, B, C..., H) for a bottle of premium Yarra Valley Pinot Noir. Each buyer's reservation price (or willingness to pay) is known to the seller, as shown below. The constant marginal cost per bottle of wine is $28 to the seller. Let us ignore fixed costs.

Buyer ABCDEFGH

Reservationprice 40 38 36 34 32 30 28 26 ($)

A) What is the profit-maximizing price and quantity if the same price has to be charged to all buyers (no price discrimination scenario)? How much are consumer surplus, producer surplus, and total surplus?

B)Suppose the seller can exercise perfect price discrimination. Repeat the questions in a.

C) Explain the difference between the two cases focussing on the difference in total surplus.