Ask Question
14 May, 16:09

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

a. $25

b. $20

c. $5

d. $0

+5
Answers (1)
  1. 14 May, 18:20
    0
    Option (a) $25

    Explanation:

    Data provided in the question:

    Amount paid by the client by Charles = $80 per hour

    Value put for the service by Charles = $100 per hour

    Opportunity cost of Diana's time = $75 per hour

    Tax = $10 per hour

    Now,

    Consumer Surplus

    = Value put up by buyer for service - Amount actually paid for service

    = $100 - $80

    = $20

    Producer Surplus

    = Amount actually paid for session - Opportunity cost of seller

    = $80 - $75

    = $5

    Therefore,

    The Total surplus = Consumer Surplus + Producer Surplus

    = $20 + $5

    = $25

    Hence,

    Option (a) $25
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers