4. On Tuesday nights, a local restaurant has a kid’s meal special. Nina takes he

Question

4. On Tuesday nights, a local restaurant has a kid’s meal special. Nina takes her child to a restaurant for chicken nuggets. The restaurant does allow for additional purchase of chicken nugget servings. Nina’s willingness to pay for each serving (her demand schedule) is shown in the table below.

Number of Chicken Nugget servings

(servings)

Willingness to pay for chicken nuggets

(per serving)

1

$5

2

$4

3

$3

4

$2

5

$1

6

$0

If the price of an additional serving of chicken nuggets is $3, how many servings will Nina buy? How much consumer surplus does Nina receive?

b. The following week, Nina returns to the restaurant again, but now the price of a serving of chicken nuggets is $4. By how much does Nina’s consumer surplus decrease compared to the previous week?

c. One week later, they return to the restaurant again. Nina discovers that the restaurant is offering an “all-you-can-eat” special for $12. How many chicken nugget servings will Nina purchase, and how much consumer surplus does Nina receive now?

d. Suppose you own the restaurant and Nina is a “typical” customer. What is the highest price you can charge for the “all-you-can-eat” special and still attract customers?

Number of Chicken Nugget servings

(servings)

Willingness to pay for chicken nuggets

(per serving)

1

$5

2

$4

3

$3

4

$2

5

$1

6

$0

Explanation / Answer

(a) If the price of an additional serving of chicken nuggets is $3, Nina will buy 3 servings. And Nina receive's Consumer surplus of $3. (I.e. 3 X 3 - 5 + 4+3)

(b) Consumer surplus will decrease by $3. It means CS = 0. (i,e. 4 x 4 - 5 + 4+3)

(c) Nina will purchase 6 servings and CS = 5+4+3+2+1+0 - 12 = $3

(d) $15

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