Table 8-3
Julie plans to start a pet-sitting service. She surveyed her neighbourhood to determine the demand for this service. Assume that each person surveyed demands only one hour of pet sitting services per period. Table 8-3 above shows a portion of her survey results.
-Refer to Table 8-3.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.What is the value of the consumer surplus enjoyed by her customers?

Question

Table 8-3
  Julie plans to start a pet-sitting service. She surveyed her neighbourhood to determine the demand for this service. Assume that each person surveyed demands only one hour of pet sitting services per period. Table 8-3 above shows a portion of her survey results.
-Refer to Table 8-3.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.What is the value of the consumer surplus enjoyed by her customers?

Quizplus · Accepted Answer

If Julie charges $7, which is equal to her marginal cost, the consumer surplus is the difference between what consumers are willing to pay and what they actually pay. Assuming the demand curve is linear and intersects the price at $7, the consumer surplus is calculated as the area of the triangle above the price line and below the demand curve. Without specific demand curve data, the consumer surplus is typically calculated as the area of a triangle: 0.5 * base * height. Here, the base is the quantity sold, and the height is the difference between the maximum price consumers are willing to pay and the price charged ($7). Given the options, $11 is the most plausible value for the consumer surplus.

Table 8-3 Julie Plans to Start a Pet-Sitting Service. She