You are thinking about renting a room in a house next year with three of your fr

Question

You are thinking about renting a room in a house next year with three of your friends. For each month’s rent, you are willing to pay $480, your first friend is willing to pay $450, your second friend is willing to pay $560, and your third friend is willing to pay $510. The landlord agrees to offer each of you separate leases but will charge you all the same price: $450.

You decide this is a good deal, so you and your friends move in. A couple of months later, you learn from someone who knows the landlord that he would have been willing to rent each room for $400 per month.

Part 1:
What is the amount of producer surplus per month?

What is the amount of total consumer surplus per month?

PART3:

What is the amount of total surplus each month?

Explanation / Answer

Answer for Part 1

Total Producer Surplus is equal to Amount Received- Willingness to Receive the rent=450*4-400*4=200

Answer for Part 2

Total Consumer Surplus=Willingness to Pay-Amount paid=560+510+480+450-4(450)=200

Total Surplus=Consumer Surplus+Producer Surplus=200+200=400

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