Question

Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is
a. $95.
b. $80.
c. $75.
d. $60.

Answer 1

Answer:

B) $80

Explanation:

The price for every piano tuning = $155, and Tom's costs for tuning pianos area as following:

• $120 < $155, producer surplus = $35
• $125 < $155, producer surplus = $30
• $140 < $155, producer surplus = $15
• $160 > $155, producer surplus = -$5

Since Tom is rational, he will only tune 3 pianos per week, since the tuning of the fourth piano is more expensive than the price charged.

Therefore, Tom's total suppliers surplus = $35 + $30 + $15 = $80

Answer 2

Answer:B - $80

Explanation: Producer surplus is the difference btw what a consumer is paying and what a producer is charging.

From the above questions, Tom tuned the following pianos:

Buyer willing to pay $155.

Tom tuned piano 1 for $120, therefore his surplus on piano 1 is $155 - $120 = $35

Tom tuned piano 2 for $125, therefore his surplus on piano 2 is $155 - $125 = $30

Tom tuned piano 3 for $140, therefore his surplus on piano 3 is $155 - $140 = $15

Tom tuned piano 4 for $160, therefore his surplus on piano 4 is $155 - $160 = ($5)

All together his surplus is $35+$30+$15 =$80