First Homework Assignment There are two parts to this assignment. You must answe
ID: 1136171 • Letter: F
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First Homework Assignment There are two parts to this assignment. You must answer both part A and part B. Be advised that McDonald's and Burger King are first and second in market share in the hamburger restaurant market A. Consumer Surplus from Lunch at McDonald's Jeremy and Latisha are UIC students who regularly buy hamburgers at McDonald's for lunch. The table shows their daily Economics 120 Fall 2018 marginal benefit (MB) schedules for McDonald's hamburgers, with marginal benefit measured as "number of dollars per Marginal Benefit Jeremy Latisha 25 15 Hamburger First 30 Second 10 Third Fourth A1. Compute Jeremy's consumer surplus. Make sure you state exactly how consumer surplus is measured-not just a number,a number of something. In purchasing three hamburgers, is Jeremy behaving rationally or irrationally? Explain your answer A2. Compute Latisha's consumer surplus. Make sure you state how consumer surplus is measured-not just a number, a number of something. In purchasing three hamburgers, is Latisha behaving rationally or irrationally? Explain your answerExplanation / Answer
A) We know consumer surplus is the difference between the willingness to pay and what the consumer actually pays.
When Jeremy consume 3 units the decision is rational nal because the total willingness to pay for three units is 25+15+6=46
And the amount paid=5*3=15
Thus consumer surplus=46-15=31
A2)Latisha maximum willingness to pay=30+10+2=42 and 15 is what she actually pays.
Thus consumer surplus=27
However Latisha is irrational and not an equilibrium because the willingness to pay for the third unit is less than an price=5. Thus 5unit should be consumed and Latisha can increase her consumer surplus by decreasing the quantity consumed. Thus 2 units should be consumed in order to maximise consumer surplus.
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