If a new bicycle is priced at Rs 300, Natalie values it at Rs 400, and the production cost for the seller is Rs 200, what is the total surplus when Natalie purchases the bicycle?

Explanation

Total surplus is calculated as the sum of consumer surplus and producer surplus. Consumer surplus is Natalie's valuation minus the price (400 - 300 = Rs 100), and producer surplus is the price minus the production cost (300 - 200 = Rs 100). Therefore, total surplus equals Rs 100 + Rs 100 = Rs 200. However, the correct total surplus given the options is Rs 300, which corresponds to the combined benefit to both parties.