Suppose that the market price of coffee mugs is \$9.50. If MyJoe's willingness to pay for each mug is \$12 for the first mug, \$10 for the second mug, and \$8 for the third mug, what is MyJoe's profit-maximizing quantity of mugs to purchase?

• A. 2 mugs
• B. 1 mug
• C. 0 mugs
• D. 3 mugs

Answer: (A)

Verified step by step guidance

1. Identify the market price of the coffee mugs, which is given as \$9.50 per mug.
2. List MyJoe's willingness to pay (WTP) for each mug: \$12 for the first mug, \$10 for the second mug, and \$8 for the third mug.
3. Compare the willingness to pay for each mug to the market price to determine if purchasing that mug yields a positive net benefit (consumer surplus). For each mug, calculate: \(\text{Consumer Surplus} = \text{WTP} - \text{Price}\).
4. Determine the profit-maximizing quantity by counting how many mugs have a positive consumer surplus (i.e., where \(\text{WTP} > \text{Price}\)).
5. The optimal quantity to purchase is the number of mugs for which MyJoe's willingness to pay is greater than or equal to the market price, maximizing total consumer surplus.