Suppose that Michelle buys a cappuccino from Paul/'s Cafe and Bakery for $6.25. Michelle was willing to pay up to $8.75 for the cappuccino and Paul/'s Cafe and Bakery was willing to accept $2.25 for the cappuccino. Based on this information, answer the questions below. a) Michelle/'s consumer surplus is equal to? b) Paul/'s Bakery/'s producer surplus is equal to?

consumer surplus = $2.25

producer surplus = $4

Explanation:

given data

market price = $6.25

willing to pay = $8.75

willing to accept = $2.25

to find out

consumer surplus and producer surplus

solution

first we get here consumer surplus that is express as

consumer surplus = willing to pay - market price ... 1

put here value we get

consumer surplus = $8.75 - $6.25

consumer surplus = $2.25

and

producer surplus will be here as

producer surplus = willing to accept - market price ... 2

put here value we get

producer surplus = $2.25 - $6.25

producer surplus = $4