Question

What is the most surplus that can be realized if only one ventilator can be produced? Which firm should produce it, and which hospital should consume it? If only one ventilator can be produced, it should be made by Producer and consumed by Hospital resulting in a maximum surplus of $ (Enter your answer as a whole number.)

Answer 1

If only one ventilator can be produced, it should be made by Producer 2 and consumed by Hospital 3, resulting in a maximum surplus of $450.

Step-by-step explanation:

To determine the maximum surplus from producing only one ventilator, we need to calculate the difference between the willingness to pay (WTP) and the cost for each producer and consumer pair. Producer 2 has the lowest cost of $150, while Hospital 3 has the highest WTP of $600. The maximum surplus occurs when the ventilator is produced by the producer with the lowest cost and consumed by the hospital with the highest WTP.

The surplus is calculated as the difference between the consumer's WTP and the producer's cost. In this scenario, Producer 2 incurs a cost of $150 to produce the ventilator, and Hospital 3 is willing to pay $600 for it. Hence, the maximum surplus is $600 (Hospital 3's WTP) - $150 (Producer 2's cost) = $450.

Therefore, to maximize surplus, the ventilator should be produced by Producer 2 and consumed by Hospital 3, resulting in a surplus of $450, representing the maximum benefit gained from the transaction between the producer and consumer.