For each of three potential buyers of oranges the table disp

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges First OrangeSecond Orange Third Orange $1.50 $1.00 S0.25 $2.00 $1.50 $0.75 $0.75 $0.60 $0 Allison Bob Carisse If the market price is $0.65... a) How many oranges will Allison consume? (3 points) b) What is Allison\'s consumer surplus? (3 points) c) What is the consumer surplus in this market? (3 points)

Solution

a )

Market price is $ 0.65 while Allison is ready to spend $0.75 for third orange. Hence, Allison is ready to consume three Orange.

b)

Allison would consume three units and CS = 0.5(2-0.65)*3

CS = 2.025

C)

CS of Allison = 2.025

CS of Bob = 0.5(1.50 - .65)*2           (Bob consumes only 2 units)

= 0.85

CS of Charisse= 0.5(0.75 – 0.65)*1     (Charisse consumes only 1 unit)

=0.05

Total CS = 0.5+0.85+2.025

=2.925