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 advertises his jersey in the local newspaper and sells it to the local buyer with the highest reservation price,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. The producer surplus is the difference between the seller's reservation price and the price received. In this case, the buyer's reservation price is $750 and the price paid is $750, so the consumer surplus is $0. The seller's reservation price is $500 and the price received is $750, so the producer surplus is $250. The total surplus is therefore $250.

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