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Elden [556K]
1 year ago
7

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, w

hile the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?
a. $25
b. $20
c. $5
d. $0
Business
1 answer:
Verdich [7]1 year ago
4 0

Answer:

Option (a) $25

Explanation:

Data provided in the question:

Amount paid by the client by Charles = $80 per hour

Value put for the service by Charles = $100 per hour

Opportunity cost of Diana's time = $75 per hour

Tax = $10 per hour

Now,

Consumer Surplus

= Value put up by buyer for service - Amount actually paid for service

= $100 - $80

= $20

Producer Surplus

= Amount actually paid for session - Opportunity cost of seller

= $80 - $75

= $5

Therefore,

The Total surplus = Consumer Surplus  + Producer Surplus

= $20 + $5

= $25

Hence,

Option (a) $25

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