A town wants to repair its swimming pool

Economics Dec 13, 2020

A town wants to repair its swimming pool. The annual demand from each of its 5,000 citizens in terms of uses is q = 15 - 3p, where p is the price (in dollars) charged for using the pool. Suppose that the price of admission is $2. How much consumer surplus does this pricing strategy generate?

A. a consumer surplus of $15.5 per customer

B. a consumer surplus of $65 per customer

C. a consumer surplus of $13.5 per customer

D. a consumer surplus of $37 per customer

E. none of the above

Expert Solution

Option C. a consumer surplus of $13.5 per customer is correct

This option is correct because

As we know

Inverse demand function

q =15-3p

q =15-3(2)

q =15-6

q =9 units

Put q=0

q =15-3p

0 =15-3p

p =5

Consumer surplus (CS)

CS = 0.5*(change in price)*(change in quantity)

CS = 0.5*(5-2)*(9)

CS = 13.5

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