Ron owns an automotive repair center. Ron provides high quality automotive repair. The market price for high quality service is $225 while the market price for standard service is $150. Currently, Ron only has a reputation for providing standard service. Ron's marginal cost function of providing high quality service is: Ron's marginal cost function of providing standard service is: Butch's Marketing has told Ron that if he hires Butch's firm to advertise and market Ron's high quality services, consumers will pay him the high quality service market price providing he delivers that quality. What is the most amount of money Ron is willing to pay for Butch's services?

Question

Ron owns an automotive repair center. Ron provides high quality automotive repair. The market price for high quality service is $225 while the market price for standard service is $150. Currently, Ron only has a reputation for providing standard service. Ron's marginal cost function of providing high quality service is:   Ron's marginal cost function of providing standard service is:   Butch's Marketing has told Ron that if he hires Butch's firm to advertise and market Ron's high quality services, consumers will pay him the high quality service market price providing he delivers that quality. What is the most amount of money Ron is willing to pay for Butch's services?

Cornysia Island · Accepted Answer

Final Answer : If Ron can sell his high quality service at high quality prices, his profit maximizing output level is:   Producer surplus in the high quality market is:   If Ron sells standard service at standard prices, his profit maximizing level of output is:   Producer surplus in the standard quality market is:   Ron is unwilling to pay for Butch's marketing services because he makes a larger profit in the standard service market.

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