Question

Andre walks Julia’s dog once a day for $50 per week. Julia values this service at $60 per week, while the opportunity cost of Andre’s time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus?

Answer 1

To calculate total revenue, marginal revenue, total cost, and marginal cost for each output level, we multiply the price per unit by the quantity sold and add up the costs. The profit maximizing quantity is determined by finding the output level where marginal revenue equals marginal cost.

Step-by-step explanation:

To calculate the total revenue for each output level, we multiply the price per unit by the quantity sold.

The marginal revenue is the change in total revenue when one more unit is sold. To calculate the total cost, we add the fixed costs to the variable costs.

The marginal cost is the change in total cost when one more unit is produced.

Total revenue, marginal revenue, total cost, and marginal cost for each output level are as follows:

Output Level | Total Revenue | Marginal Revenue | Total Cost | Marginal Cost

1 | $72 | $72 | $164 | $64

2 | $144 | $72 | $248 | $84

3 | $216 | $72 | $358 | $114

4 | $288 | $72 | $542 | $184

5 | $360 | $72 | $810 | $270

The profit maximizing quantity is determined by finding the output level where marginal revenue equals marginal cost. In this case, the profit maximizing quantity is 3 units.

Answer 2

$25

Step-by-step explanation:

Consumer surplus is defined as the difference between the price of a good or service and what a consumer is willing to pay for that good or service. Julia's surplus = $60 - $50 = $10

Supplier surplus is defined as the difference between the price of a good or service and the price at which the supplier would be willing to sell his goods or services. Andre's surplus = $50 - $35 = $15

total surplus = Julia's and Andre's surplus = $10 + $15 = $25