The table below shows the reservation prices for Eric and Frank on bowling and d
ID: 1173455 • Letter: T
Question
The table below shows the reservation prices for Eric and Frank on bowling and dinner.
Eric
Frank
Dinner
$40
$30
Bowling
$35
$50
Total
$75
$80
For a bowling alley, Rolling4Fun Lanes, charge $75 for a bundle of bowling and dinner, dinner alone for $35 and bowling alone for $50.
When Frank purchases the bundle,
he retains a consumer surplus of $5 and pays an effective price of $25 for dinner.
he retains a consumer surplus of $5 and pays an effective price of $35 for dinner.
he retains a consumer surplus of $0 and pays an effective price of $25 for dinner.
he retains a consumer surplus of $15 and pays an effective price of $35 for dinner.
Eric
Frank
Dinner
$40
$30
Bowling
$35
$50
Total
$75
$80
Explanation / Answer
Solution: he retains a consumer surplus of $5 and pays an effective price of $25 for dinner
Explanation: When Frank buys the bundle he is saving $5 (=$80-$75). As dinner alone is for $35 and bowling alone for $50; and his willingness to pay for dinner is $30 and bowling is $50. There is no change in bowling i.e. $50; and the balance $25 is been paid for dinner.
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