Question

Chad paid $35 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He was willing to pay $45. When Chad’s friend Sam learns that Chad bought a potato cannon, he asks Chad if he will sell it for $65, and Chad agrees. Sam is thrilled, because he would have paid Chad up to $80 for the cannon. Chad is also delighted. Determine the consumer surplus from the original purchase and the additional surplus generated by the resale of the cannon.Marcus’s original consumer surplus:______$ Marcus’s producer surplus from the resale:______$ Starling’s consumer surplus from the resale:______$ Total surplus generated from the resale:_______$

Answer 1

Answer and Explanation:

The computation is shown below:

Marcus’s original  Consumer surplus is

= Willing to pay - customer actually pay

= $45 - $35

= $10

Marcus’s producer surplus from the resale is

= Amount received by producer - the minimum amount to accept

= $55 - $45

= $10

Starling’s consumer surplus from the resale is

Willing to pay - customer actually pay

= $80 - $55

= $25

And, the Total surplus generated from the resale is

= Producer surplus + consumer surplus

= $10 + $25

= $35