Figure 7-18 -Refer to Figure 7-18.Suppose the willingness to pay of the marginal buyer of the 3^rd unit is $125.Then total surplus is maximized if A)1 unit of the good is produced and sold. B)2 units of the good are produced and sold. C)3 units of the good are produced and sold. D)4 units of the good are produced and sold.

Question

Quizplus · Accepted Answer

Total surplus is maximized when the marginal buyer's willingness to pay equals the marginal seller's willingness to sell. In this case, the marginal seller's willingness to sell the 3rd unit is $40, which is less than the marginal buyer's willingness to pay of $125. Therefore, producing and selling 3 units of the good would maximize total surplus. Any additional units produced and sold would result in the marginal buyer's willingness to pay being less than the marginal seller's willingness to sell, reducing total surplus.

Figure 7-18 -Refer to Figure 7-18.Suppose the Willingness to Pay of the Pay