A sand and gravel company sells pea gravel. It faces two types of customers with the following inverse demand curves:
Type A: P = 3.5 - 0.002Q
Type B: P = 3 - 0.001Q
Where Q measures bags of pea gravel and P is the price per bag. The marginal cost is $0.50 per bag. Suppose the business wants to use discounting to price discriminate. The consumer surplus for Type B consumers with the price discount is $____.

Question

Quizplus · Accepted Answer

To find the consumer surplus for Type B consumers, calculate the area of the triangle formed by the demand curve and the price line. The maximum willingness to pay (where P = 0) is 3,000 bags (from 3 = 0.001Q). The price with discount is $0.50, so Q = 2,500 bags. Consumer surplus = 0.5 * (3 - 0.5) * 2,500 = 1,093.75.

A Sand and Gravel Company Sells Pea Gravel