Tim has just inherited a signed Wayne Gretzky hockey jersey,which he would like to sell.His reservation price for the jersey is $500,and he can either place an ad in the local newspaper for $10 or sell the jersey on eBay,which will charge him 5% of the selling price.The local buyer with the highest reservation price is willing to pay $750 at most,while the two eBay bidders with the highest reservation prices are willing to pay $1,200 and $1,000,respectively.(Note that,in an eBay auction,the bidder with the highest reservation price wins,and the price paid is the reservation price of the second-highest bidder. )
-Refer to the information above.If Tim sells his jersey on eBay,the total surplus to both Tim and the winning bidder will be ________.

Question

Quizplus · Accepted Answer

The total surplus is the sum of the consumer surplus and the producer surplus. The consumer surplus is the difference between the buyer's reservation price and the price paid, which is $1,200 - $1,000 = $200. The producer surplus is the difference between the price received and the reservation price, which is $1,000 - $500 = $500. The total surplus is therefore $200 + $500 = $700.

Tim Has Just Inherited a Signed Wayne Gretzky Hockey Jersey,which