Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Noah is rational in deciding how many cans to buy. His consumer surplus is
A) $0.50.
B) $0.85.
C) $1.05.
D) $1.20.

Question

Quizplus · Accepted Answer

Noah's consumer surplus can be calculated as the difference between the maximum amount he is willing to pay for his last can and the total amount he actually paid. Noah will purchase four cans, since he is willing to pay more than the cost of each can up until the fourth one. Therefore, his total cost will be $1.95, and his consumer surplus will be $0.40 ($0.95 - $0.50) for the first can, $0.30 ($0.80 - $0.50) for the second can, $0.10 ($0.60 - $0.50) for the third can and $0.00 ($0.40 - $0.50) for the fourth can. Therefore, his total consumer surplus will be $0.40 + $0.30 + $0.10 + $0.00 = $0.80.

Noah Drinks Dr