9. Joe is an avid surfer - he surfs regularly at Tempe Town Lake. His monthly de
ID: 1135533 • Letter: 9
Question
9. Joe is an avid surfer - he surfs regularly at Tempe Town Lake. His monthly demand function for surfing is: x -36 -2p, where p is the cost of a surfing trip to Tempe Town Lake and x is the ber of surfing trips he takes (a) What is the cutoff price at which he would stop surfing at Tempe Town Lake altogether? (b) The cost of a surfing trip to Tempe Town Lake is S8. How many trips does Joe take per month? (c) What is Joe's monthly consumer's surplus from being able to surf at Tempe Town Lake? (d) What is his consumer's surplus per trip from surfing at Tempe Town Lake?Explanation / Answer
(a) Cut-off price is obtained by setting x = 0.
36 - 2p = 0
2p = 36
p = $18
(b) Joe will determined number of trips by equating marginal revenue (MR) with marginal cost (MC).
x = 36 - 2p
2p = 36 - x
p = 18 - 0.5x
Total revenue (TR) = p.x = 18x - 0.5x2
MR = dTR/dx = 18 - x
Equating with MC,
18 - x = 8
x = 10
(c) When x = 10,
p = 18 - (0.5 x 10) = 18 - 5 = $13
Monthly Consumer surplus (CS) = Area between demand curve and price
= (1/2) x $(18 - 13) x 10 = 5 x $5 = $25
(d) CS per trip = Monthly CS / Number of trips = $25/10 = $2.5
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.