Question

Concept: Consumer and Producer Surplus Suppose a local cable company provides cable service to a rural community. The figure to the right illustrates the cable company's marginal cost of providing cable service along with the community's demand for cable TV. MC C ︵ 120- Assume the local cable company is a monopoly When the company maximizes profits, consumer surplus equals $ 200.0 (enter a numeric response using a real number rounded to one decimal place), and producer surplus equals $600 80 Compared to the perfectly competitive market outcome, the cable company creates dead weight loss equal to D 30 20 MR 0 10 20 30 40 50 60 70 80 90 100 Quantity of cable subscriptions

Answer 1

Given

Consumer Surplus ( It is the area below the demand curve and above price line.) = $200

Producer Surplus ( It is the area below the price line and above supply curve.) = $600

In monopoly, Equilibrium price and quantity are found by the equilibrium condition. As per the diagram, P(M)= 60 and Q(M)= 20

In perfect competition, MC represents the supply curve and Equilibrium is given by P(C)= 70 Q(C)= 30

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Deadweight loss is given by = 1/2*(Q(C)- Q (M)* (P- P(M)

=1/2*(30-20)*(80-60)

= 1/2*(10)*(20)

=$100 Ans