Jason wants to hire Maria to tutor him in economics. Jason is willing to pay $30 for the first hour of tutoring, $25 for the second, $20 for the third, $15 for the fourth, and $10 for the fifth
Maria has an opportunity cost per hour of $6 for the first, $9 for the second, $12 for the third, $15 for the fourth, and $18 for the fifth. The initial equilibrium price for tutoring is $15 an hour and hence Maria tutors Jason for 4 hours. Now, Maria realizes that she is the only economics tutor because all the other tutors have graduated. Because she is the only tutor, she has a monopoly and, as a monopolist, Maria decides to charge a price of $25 instead of $15 an hour. a. At the price of $25 an hour, how many hours will Maria tutor Jason? b. At the initial equilibrium price of $15 an hour, what was Jason's total consumer surplus and Maria's total producer surplus? c. At the price of $25 an hour, how many hours will Jason hire Maria to tutor him? What is Jason's total consumer surplus and Maria's total producer surplus? d. How does the sum of Jason's consumer surplus plus Maria's producer surplus compare at the initial equilibrium price of $15 an hour (part b) and at the new price of $25 an hour (part c)? Comment on any difference.
a. Maria will tutor Jason for 2 hours.
b. At the initial price of $15, Jason's total consumer surplus was $30, the sum of $15 from the first hour plus $10 from the second plus $5 from the third plus $0 from the fourth. Maria made a producer surplus of $18, the sum of $9 on the first hour plus $6 on the second hour plus $3 on the third hour plus $0 on the fourth hour.
c. At the new price of $25 an hour, Jason will hire Maria for 1 hour. Jason's total consumer surplus is $5, the consumer surplus from the first hour. Maria makes a producer surplus of $35, the sum of $19 on the first hour plus $16 on the second hour.
d. When the price was $15 an hour, the sum of the consumer and producer surpluses was $48. When the price is $25, the sum of the consumer and producer surpluses is $40. The $8 difference between the initial situation and the situation in which Maria is a monopolist is the deadweight loss.
You might also like to view...
In the classical model, what is the impact of changes in the demand for goods and services on aggregate output? Do they affect any real variables?
What will be an ideal response?
If a government budget deficit leads to a higher level of imports, with exports remaining fixed, the result will be a
a. smaller trade deficit. b. larger trade deficit. c. smaller surplus. d. larger surplus.
A . When the United States experienced double-digit inflation rates in the 1970s, people routinely bought houses that were more expensive than they could easily afford. Explain their behavior. b. Mortgage companies responded to this behavior, in part, by offering variable rate mortgages, where the interest rate for the loan varies with the inflation rate. Explain their behavior
There has been an unmistakable steady trend toward bigness in business since
A. the Civil War. B. 1911. C. the mid-1930s. D. the late-1990s.