ECON 1900 Study Guide - Economic Surplus, Marginal Utility, Marginal Cost
Document Summary
Maximize total net benefits to society by producing where marginal benefits = marginal cost. Total net benefits = total benefits total opportunity costs. Total net benefits = consumer surplus plus producer surplus. (total net benefits are divided between these two groups by the market price. ) Consumer surplus is the difference between the total benefits that the consumers receive and their expenditure on the good. Producer surplus is the difference between the total revenue that the producers receive and the total opportunity cost of producing the good. Demand and supply are illustrated as step functions for this diagram. Consumers are willing to pay for the first unit. The first unit adds to total benefits. (the marginal benefit of the first unit is . ) Consumers are willing to pay for the second unit. The second unit adds to total benefits. (the marginal benefit of the second unit is . ) The total benefit at two units is .