1. Hugo decides to buy his Christmas gifts on Black Friday. To simplify his life, he is giving his 10 closest friends scarves for Christmas and everyone else Christmas cards. Hugo is willing to spend $200 on the 10 scarves. When he arrives at Macy’s at 5:00 A.M. on Black Friday, he discovers that scarves are on sale for $12 each. Hugo buys 10 scarves and uses the remaining $80 to buy himself a some clothes.1.a. How much consumer surplus did Hugo receive from the tenth scarf he purchased?2. Now suppose the manager at Macy’s was hoping to sell all 100 scarves Macy's had in inventory. She decided to put the scarves on sale for $10, but an employee accidentally listed the sales price at $12. To the manager’s surprise, the store sold all 100 scarves at the $12 sales price.2.a How much producer surplus did Macy’s receive from the hundredth scarf sold?

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Asked Mar 24, 2020
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1. Hugo decides to buy his Christmas gifts on Black Friday. To simplify his life, he is giving his 10 closest friends scarves for Christmas and everyone else Christmas cards. Hugo is willing to spend $200 on the 10 scarves. When he arrives at Macy’s at 5:00 A.M. on Black Friday, he discovers that scarves are on sale for $12 each. Hugo buys 10 scarves and uses the remaining $80 to buy himself a some clothes.

1.a. How much consumer surplus did Hugo receive from the tenth scarf he purchased?

2. Now suppose the manager at Macy’s was hoping to sell all 100 scarves Macy's had in inventory. She decided to put the scarves on sale for $10, but an employee accidentally listed the sales price at $12. To the manager’s surprise, the store sold all 100 scarves at the $12 sales price.

2.a How much producer surplus did Macy’s receive from the hundredth scarf sold?

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Expert Answer

Step 1

Consumer surplus is the difference between the price consumer is willing to pay and the actual price he pays for each unit.

Producer surplus is the difference between the price producer actually receives and the price he is willing to accept for a unit of the good.

Step 2

Maximum price consumer is willing to pay for 10th unit = 200/10=20

Actual price paid by the consumer for 1...

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