Consider the following scenario to answer the following questions: The Varsity,located in downtown Atlanta,is the world's largest drive-in restaurant.Located near the Georgia Tech campus,the drive-in attracts two distinct types of customers-college students and visitors to Atlanta.The owners are considering offering a student discount of $1 off their combo meal,which is regularly priced at $9.There are 5,000 students interested in purchasing a combo meal,with a maximum willingness to pay of $8.There are 5,000 visiting customers interested in purchasing the combo meal,with a maximum willingness to pay of $9.Assume that each customer,at most,will purchase a single meal and the marginal cost is $5.
-What is the difference in the amount of total consumer surplus if the Varsity offers the combo meal at the single price of $8 per combo meal instead of the previous single price of $9 per combo meal?
A) no change
B) $16,500 decrease
C) $15,000 decrease
D) $10,000 increase
E) $5,000 increase

Question

Quizplus · Accepted Answer

At a price of $9, only the 5,000 visiting customers would buy the meal, each gaining a consumer surplus of $0 (since their maximum willingness to pay is $9). At a price of $8, both the 5,000 students and the 5,000 visiting customers would buy the meal. The students would each gain a consumer surplus of $0 (since their maximum willingness to pay is $8), but the visiting customers would each gain a consumer surplus of $1 (since their maximum willingness to pay is $9). Therefore, the total increase in consumer surplus is $5,000 (5,000 visiting customers * $1 surplus each).

Consider the Following Scenario to Answer the Following Questions: the Varsity,located