Question

Pule purchases four bottles of bathroom cleaner for $3 each. The maximum prices she would have been willing to pay for each bottle are $6 for the first bottle, $5 for the second bottle, $4 for the third bottle, and $3 for the fourth bottle. The marginal cost of producing the bottles is $2.50. What is Pule's consumer surplus on the third bottle of bathroom cleaner?a. $.50 b. $6c. $1d. $0

Answer 1

Answer:

The correct answer is:

$1 (d)

Explanation:

A consumer surplus is the difference between what a consumer is willing to pay and what they are able to pay for a particular good or service. It is simply the extra benefit gained by the consumer for paying lesser for a good or service than what they actually intended to pay. Based on this, it is noticed that consumer surplus tends to increase as the market price of goods/services fall, and reduce as their price increases. It is represented mathematically as:

Consumer surplus = (Price willing to pay) - (Actual price paid)

In this example, the consumer surplus is calculated thus:

price willing to pay for third bottle  = $4

Price paid = $3

Consumer surplus = 4 - 3 = $1