The Krusty Krab is a monopoly that sells krabby patties at the bikini bottom. The owner, Mr. Krabs, is a greedy man, who is considering his pricing strategy. Mr. Krabs has asked one of his employees, SpongeBob, to study the demand of krabby patties.

(Total 25 marks)

A.SpongeBob's finding shows that the customers are very sensitive to the price. In particular, if the price goes up by 1%, the demand will decrease by 2.5%. Suppose the marginal cost of making a krabby patty is $3. If Mr. Krabs decides to do a mark-up pricing, what will be the optimal mark-up?(4 marks)

How much will Mr. Krabs charge for each krabby patty?(4 marks)

B.Mr. Krabs' another employee, Squidward, has done some research as well. He finds that every customer has a different willingness to pay. The following table lists some customers' willingness to pay.

With such information, what will be the best pricing strategy for Mr. Krabs?(4 marks)Assuming no fixed cost, what will be Mr. Krabs' profit?(4 marks)

What is second-degree price discrimination?(4 marks)Provide one example and explain how it works.(5 marks)

Customer WTP Patrick $7 Sandy $4 Plankton $2 Mrs. Puff $3 Mermaid Man $6 Barnacle Boy $5