First, compute the consumer surplus Kate gets from buying the burger for $1.00, refusing Hubert's offers, and eating the burger. Enter these amountsin the second column of the following table. Next, compute the consumer surplus she gets from buying the first burger at $1.00, selling it to Hubert ateach price listed, purchasing another burger for $1.00, and consuming it. Enter these amounts in the third column of the table. Again, assume thatKate's cost of waiting in line for a burger is zero.Note: If Kate is willing to sell her burger to Hubert while at the Wendy's restaurant, she would purchase another burger immediately, since the valueof the burger ($3.00) remains higher than the price of the burger ($1.00).Kate's Consumer Surplus from ...Purchasing and Consuming ImmediatelyPurchasing, Selling, Purchasing Again, Then ConsumingOffer Price from Friend(Dollars)(Dollars)$1.502.002.00$2.002.002.50$2.502.003.00Assuming her cost of waiting in line is zero, what's the lowest of the offers listed in the prior table that Kate would accept in exchange for her burger?$1.50O $2.00O $2.50Now relax the assumption that Kate's cost of waiting for a Double Stack is zero. Specifically, Kate values each minute of her time at $0.25.Suppose the wait for a Double Stack is two minutes. Including the value of her time, the cost of obtaining a burger for Kate is $, andher consumer surplus from purchasing and consuming a burger is $Of the following prices, what's the lowest price she would accept from Hubert in exchange for her burger?O $1.25O $1.75O $2.25O $2.75From the previous analysis, you can conclude that the minimum price at which Kate is willing to sell her Double Stack burger to Hubertdecreasesthe shorter her wait in line. 2. The effect of transaction costs on decision makingThis Wendy's commercial confuses the notions of appreciation and consumer surplus. Recall that consumer surplus is the difference between what aconsumer is willing to pay for a good and what he or she actually pays for it. According to standard economic theory, consumer surplus must alwaysbe at least zeroEconomists often simplify economic models by ignoring the role that transaction costs play in decision making. Purchasing a good often involvesexplicit transaction costs, such as the cost of the gasoline used to get to the store, but there are also implicit transaction costs such as the opportunitycost of the time spent shopping for and acquiring a product. The remaining questions will help you understand the importance of transaction costs.Suppose Kate values consuming her first Double Stack burger at $3.00, and she places no value on any additional burgers. Based on Kate's willingnessto pay, her demand curve is plotted on the following graph. For simplicity, assume there is no time cost of waiting in line for her first Double Stackburger.Using the green rectangle (triangle symbols), shade the area representing Kate's consumer surplus from purchasing a burger under these conditionson the following graph.Consumer SurplusDemandPrice11235QUANTITY (Double Stack burgers)Suppose Kate just sat down to enjoy the Double Stack burger that she purchased for $1.00. Her friend, Hubert, would also like a Double Stack burger,but he strongly dislikes standing in line. Hubert offers to buy Kate's Double Stack rather than wait in line himself and pay $1.00.PRICE (Dollars per burger)

Question

Accepted Answer

Consumer surplus is the difference between the willingness to pay and the price actually paid.
Given…