Suppose Eddie's demand curve for text messages is T = 150 - 500P_t,where T stands for the number of text messages and P_t represents the price of text messages.What is Eddie's consumer surplus if P_t = $0.10 per message? A) $5 B) $10 C) $20 D) $50

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Quizplus · Accepted Answer

Consumer surplus is the area under the demand curve above the price level. To find Eddie's consumer surplus when the price of text messages is $0.10, we first calculate the quantity demanded at that price: T = 150 - 500(0.10) = 150 - 50 = 100 text messages. The consumer surplus is then calculated as the area of a triangle with a base of 100 (the quantity) and a height of (0.30 - 0.10) = $0.20 (the difference between the maximum price he is willing to pay for the last unit, which can be inferred from the intercept of the demand curve when quantity is zero, and the actual price). The maximum price can be found by setting T to 0: 0 = 150 - 500P, solving for P gives P = $0.30. Therefore, the consumer surplus is (1/2) * base * height = (1/2) * 100 * 0.20 = $10.

Suppose Eddie's Demand Curve for Text Messages Is T =