Question

Suppose a new 2018 Mini Cooper has a perceived benefit to you equivalent to $30,000, and it is priced at $21,500. The cost per unit for the car producer, everything included, amounts to $11,000. Which statement below is true?

		A) Perceived benefit is below cost to justify production
		B) Value created is $20,000
		C) Producer captures more of the created value than consumer
		D) Producer surplus is $10,200

Answer 1

A) Perceived benefit is below cost to justify Production

As the cost to the producer ($21,500 + $11,000) is more than the benefit, the perceived benefit is below cost to justify production.