Loyal customers buy a substantial amount from the firm. These loyal customers are the most:

• A. likely to experience the lowest consumer surplus
• B. likely to have a high willingness to pay for the firm's products
• C. likely to be indifferent between the firm's products and competitors' products
• D. likely to respond strongly to small price increases

Answer: (B)

Verified step by step guidance

1. Understand the concept of consumer surplus: it is the difference between what a consumer is willing to pay for a good and what they actually pay. A higher willingness to pay generally means a higher potential consumer surplus if the price is lower than that willingness.
2. Recognize that loyal customers typically have a high willingness to pay because they value the firm's products more than others, which is why they continue purchasing despite alternatives.
3. Analyze the options: loyal customers are unlikely to have the lowest consumer surplus because their willingness to pay is high, so if prices are reasonable, their surplus can be substantial.
4. Consider that loyal customers are less likely to be indifferent between products since their loyalty implies a preference, and they are less likely to respond strongly to small price increases because their high valuation makes them more tolerant of price changes.
5. Conclude that the most accurate characterization is that loyal customers are likely to have a high willingness to pay for the firm's products, which explains their loyalty and purchasing behavior.