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Week 3 Homework
Please answer the following questions:
1. The following information describes the value Lori Landlord places on having her five apartment houses repainted. She values the repainting of each apartment house at a different amount depending on how badly it needs repainting.
Value of new paint on 1st apt house $5,000
Value of new paint on 2nd apt house $4,000
Value of new paint on 3rd apt house $3,000
Value of new paint on 4th apt house $2,000
Value of new paint on 5th apt house $1,000
Plot Lori Landlord’s willingness to pay. (Note don’t worry about turning in the plotted graph, just do it on paper.)
If the price to repaint her apartments is $5,000 each, how many will she repaint? What is the value of her consumer surplus?
Suppose the price to repaint her apartments falls to $2,000 each. How many apartments will Lori choose to have repainted? What is the value of her consumer surplus?
What happened to Ms. Landlord’s consumer surplus when the price of having her apartments repainted fell? Why?
IF it costs 5,000 each, she will probably paint 1st house. Her consumer surplus is zero on that house, she got the job done for the value she gave to it.
if the price falls to 2,000 each, she will paint all except house 5.
Consumer surplus= 5000+4000+3000+2000-4*2000= 14,000-8000
When the price fell, she got "value" for what she paid.
Could you post the answer to the economics about the painting of the five apt house.
To plot Lori Landlord's willingness to pay, you can create a graph with the number of apartment houses on the x-axis and the value of new paint on the y-axis. The values given are:
1st apt house: $5,000
2nd apt house: $4,000
3rd apt house: $3,000
4th apt house: $2,000
5th apt house: $1,000
To represent this on a graph, plot the points (1, $5,000), (2, $4,000), (3, $3,000), (4, $2,000), and (5, $1,000).
1. If the price to repaint her apartments is $5,000 each, she will choose to repaint the first apartment house. The value of her consumer surplus can be calculated by subtracting the price she pays ($5,000) from the value she places on it ($5,000). So her consumer surplus is $5,000 - $5,000 = $0.
2. If the price to repaint her apartments falls to $2,000 each, she will choose to have the first 3 apartment houses repainted. The value of her consumer surplus can be calculated by subtracting the price she pays ($2,000 x 3 = $6,000) from the value she places on it ($5,000 + $4,000 + $3,000 = $12,000). So her consumer surplus is $12,000 - $6,000 = $6,000.
3. Ms. Landlord's consumer surplus increased from $0 to $6,000 when the price of having her apartments repainted fell. This is because at the lower price, she is able to have more apartments repainted, which increases her overall satisfaction and value gained from the repainting.
To plot Lori Landlord's willingness to pay, you can create a graph with the quantity of apartment houses repainted on the x-axis and the value of new paint on the y-axis. The values provided in the question can be used to plot the points on the graph.
1. Plotting the points:
- The value of new paint on the 1st apt house is $5,000, so plot this point at (1, $5,000).
- The value of new paint on the 2nd apt house is $4,000, so plot this point at (2, $4,000).
- The value of new paint on the 3rd apt house is $3,000, so plot this point at (3, $3,000).
- The value of new paint on the 4th apt house is $2,000, so plot this point at (4, $2,000).
- The value of new paint on the 5th apt house is $1,000, so plot this point at (5, $1,000).
2. Connecting the points:
After plotting the points, you can connect them with a line to represent Lori Landlord's willingness to pay. In this case, the line will start at (1, $5,000) and gradually decrease as you move towards the right, ending at (5, $1,000).
To answer the rest of the questions:
If the price to repaint her apartments is $5,000 each, she will only repaint the 1st apartment house. The value of her consumer surplus can be calculated by subtracting the price she pays ($5,000) from the maximum amount she is willing to pay ($5,000), resulting in a consumer surplus of $0.
If the price to repaint her apartments falls to $2,000 each, she will choose to have the 4th and 5th apartments repainted as well. The value of her consumer surplus can be calculated by subtracting the price she pays ($6,000) from the maximum amount she is willing to pay ($9,000), resulting in a consumer surplus of $3,000.
Ms. Landlord's consumer surplus increased from $0 to $3,000 when the price of having her apartments repainted fell. This happened because as the price dropped, she was able to have more apartments repainted, thus increasing her total surplus.