Question

MBC Consider a monopsony consumer facing the following MB, supply, and monoposonist MC curves: M M 200 - 2Q if 0<Q<100 10 otherwise OSPP -20 if 20 <P To otherwise MCM(Q) = 2Q + 20 Solve for the price, quantity, and dead weight loss. (All answers should have no more than 1 digit after the decimal) P= Q= DWL= If the government wanted to eliminate the dead weight loss with a price control, should it use a price ceiling or price floor? O A. Price ceiling O B. Price floor O C. There will still be DWL with either a price ceiling or floor OD. There is no DWL At what price should this price control be set to eliminate dead weight loss?

Answer 1

1)  Marginal value is the additional benefit derived from purchasing one more unit of a good; since the demand curve shows the buyer’s additional willingness to pay for an additional unit, marginal value and the demand curve coincide.

MB= MC for profit maximisation

200-2Q= 2Q+20

180=4Q

Q=45

P= 110

For Perfect market equilibrium:

MB=D=S

200-2Q=Q+20 (P=Q+20)

3Q=180

Q=60

P= 80

uto Deadweight long Supply D=MB 45 60 7Q Deadweight loss (10-65) * _ * (60.45) 15 *£ X H5 = 3375 Price ceiling 80 would be DWL the price to eliminitate 10. Socially optimum output would be In perfectly competezine mars where, HSW = 120-4 = MB