Answer:
The value of Nick's consumer surplus for the milkshakes he buys is $3.
Step-by-step explanation:
Given : Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay $4, for the second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1.
To find : What is the value of Nick's consumer surplus for the milkshakes he buys?
Solution :
Nick can purchase each milkshake for $2.
For 1st milkshake purchased Nick is willing to pay $4
Consume surplus $4-$2=$2
For 2nd milkshake purchased Nick is willing to pay $3
Consume surplus $3-$2=$1
For 3rd milkshake purchased Nick is willing to pay $2
Consume surplus $2-$2=$0
For 4th milkshake purchased Nick is willing to pay $1
Consume surplus $1-$2=$-1 cannot be consider.
We add together the surplus from the 1st, 2nd, 3rd, and 4th milkshake
i.e. $2+$1+$0=$3
Therefore, the value of Nick's consumer surplus for the milkshakes he buys is $3.
