Asked Feb 9, 2020

Suppose we have a product with the following conditions:

The consumer's maximum willingness to pay is 8

A firm's minimum willingness to accept is 1

The market price is 7

a. What is the consumer surplus?

CS =

b. What is the producer surplus?

PS =

c. What is the total surplus

TS =


Expert Answer

Step 1

a) Consumer surplus is calculated as below:

Finance homework question answer, step 1, image 1

Answer: CS = 1

Step 2

b) Producer Surplus is calculated as :

Finance homework question answer, step 2, image 1

Answer: PS = 6


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