Question

Brittany provides manicures at the only salon in town. Her marginal cost is constant at $5 per client, her fixed cost is $25 per day, and she is able to do 8 manicures per day. On a given day, half of her clients are willing to pay $15 for a manicure; half are willing to pay only $10. If she charges all of her clients $10, then her maximum daily profit equals

$80
$15
$40
$55
$50

Answer 1

$ 15

Step-by-step explanation:

Assuming Brittany cannot price differentiate each individual so she can either charge $15 or $10 to all. We will solve for both prices for information purposes.

Total daily revenue if she charges $15 :

15 *4 = $60 as only 4 people will buy manicures

Total daily revenue if she charges $10 :

10 * 8 = $80 all 8 people will purchase

Costs if she charges $15:

5 * 4 + 25 = $45

Costs if she charges $10:

5 * 8 + 25 = $65

So, profits

For $15 = 60 - 45 = $15

For $10 = 80 - 65 = $ 15

So both amounts result in same maximum profits.

Hope that helps.