Question

David tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $135 per tuning. One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is :

A) $30 (answer but I don't get why)
B) $75
C)$20
D) $-15

Answer 1

A) $30

Step-by-step explanation:

Applying supply and demand concepts, David won't tune any pianos for an asking price that's higher than what his customers are willing to pay ($135 per tuning). Therefore, he won't be tuning the third and fourth piano since his asking price exceeds $135.

For the first two pianos, his producer surplus is the difference between how much customers are willing to pay and how much David is willing to accept for his services.

1st piano:

Surplus1 = $135 - $115 = $20

2nd piano:

Surplus2 = $135 - $125 = $10

Thus, his total producer surplus is the sum of the surplus for both pianos:

Producer Surplus = $20 + $10 = $30.