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23 January, 22:28

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for $10 , a second lawn for $15 , and a third lawn for $21. 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 $26 , and Ms. Smith would be willing to pay $21.

If Tim offers to mow lawns for $21 each, what will be his producer surplus? Considering Mrs. Jones, Mr. Wilson, and Ms. Smith together, what will be their consumer surplus?

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  1. 23 January, 22:59
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    The producer surplus will be $17.

    The consumer surplus will be $14.

    Explanation:

    The producer surplus is the difference between the minimum price a producer is willing to accept and the price he actually gets.

    The consumer surplus is the difference between the maximum price a consumer is willing to pay for a product and the price it actually gets.

    The price for mowing lawns is $21.

    Producer surplus

    = ($21 - $10) + ($21 - $15) + ($21 - $21)

    = $11 + $6 + $0

    = $17

    Consumer surplus

    = ($30 - $21) + ($26 - $21) + ($21 - $21)

    = $9 + $5 + $0

    = $14
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