Question

Be straight-to-the-point and just give me the final answers.

1. Consider an auction of two rare postage stamps. Peter’s willingness to pay for a stamp is $100. Paul’s willingness to pay for a stamp is $50. Mary’s willingness to pay for a stamp is $30.

a. At what bid price will the auction end with two winners?

b. Who are the winners?

c. What is the total consumer surplus (CS)?

2. Suppose you have two bathrooms that need to be renovated. Company A’s cost (willingness to sell) of renovating a bathroom is $10,000. Company B’s cost of renovating a bathroom is $12,000. Company C’s cost of renovating a bathroom is $20,000.

a. At what offer price will two companies be willing to renovate a bathroom for you?

b. Which companies are willing to renovate a bathroom for you?

c. What is the total producer surplus (PS)?

Answer 1

1a. Auction end with the $100 and the two winner is peter and paul.

b. winners are peter and paul

c. total consumer surplus (CS) is $50

consumer surplus means difference between the consumer willingness to pay for a commodity and the actual price paid by the them.

2a. At $14000 offer price will two comapnies willing to renovate a bathroom for you

b. company A is willing to renovate a bathroom for you

c. producer surplus is $4000

producer surplus means difference between the ammount the producer is willing to supply goods and the actual ammount received by him when he makes the trade.