Multiple Choice
Which of the following companies is most clearly using a profit maximization objective based on consumer surplus and willingness to pay?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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The most a consumer is willing to pay for a product is equivalent to the product's:
A
consumer surplus
B
market price
C
marginal benefit
D
value to the consumer
Verified step by step guidance1
Understand the concept of 'marginal benefit' in microeconomics: it represents the additional satisfaction or utility a consumer receives from consuming one more unit of a good or service.
Recognize that the maximum amount a consumer is willing to pay for a product corresponds to the marginal benefit they expect to gain from that product.
Differentiate this from 'consumer surplus,' which is the difference between what a consumer is willing to pay (marginal benefit) and the actual market price paid.
Note that the 'market price' is the amount the consumer actually pays, which may be less than or equal to the marginal benefit, but not necessarily the maximum willingness to pay.
Conclude that the 'value to the consumer' is a broader term that can include total benefit, but the specific maximum willingness to pay for one unit is best described by the marginal benefit.
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