Question

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $12, a second lawn for $17, and a third lawn for $20. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay $30 to have her lawn mowed, Mr. Wilson would be willing to pay $28, and Ms. Smith would be willing to pay $20.

A) If Tim offers to mow lawns for $23 each. what will be his producer surplus?
B) Considering Mrs. Jones. Mr. Wilson, and Ms. Smith together, what will be their consumer surplus?

Answer 1

Producer surplus USD 20 .

Consumer surplus USD 9.

Step-by-step explanation:

Producer surplus is:

Revenue - Total willingness to sell

The producer surplus would be = $(23 - 12) + (23 - 17) + (23 - 20) = USD 20

Consumer surplus is:

Total willingness to pay-revenue

The consumer surplus is $(30 - 23) + (28 - 23) + (20 - 23) = USD 9