Why do companies typically not charge each consumer their reservation price?

• A. Government regulations prohibit charging different prices to different consumers.
• B. It is difficult and costly to determine each consumer's exact willingness to pay.
• C. Charging everyone their reservation price always leads to lower profits.
• D. Consumers always refuse to pay their reservation price.

Answer: (B)

Verified step by step guidance

1. Understand the concept of reservation price: it is the maximum price a consumer is willing to pay for a good or service.
2. Recognize that charging each consumer their reservation price is a form of perfect price discrimination, which requires knowing each consumer's exact willingness to pay.
3. Consider the practical difficulties: identifying each consumer's reservation price involves significant information costs and complexity, making it costly and challenging for firms.
4. Note that government regulations may restrict price discrimination, but the primary reason firms avoid charging individual reservation prices is the difficulty and cost of obtaining that information.
5. Understand that charging everyone their reservation price does not necessarily lead to lower profits; in fact, perfect price discrimination can increase profits, but it is rarely feasible due to the reasons above.