Question

TR! MR FC vel TC MC ATC Profit S-6 $25 21 5 4 3 2 $25 $20 $153 $10 41 S33 Complete the table above, using the given information. a. Use the demand and supply schedules to plot both curves on a well-labeled graph. b. Now assume a price floor of $20 and indicate this on the graph. C. Calculate the value of the new consumer surplus, the value of the new producer surplus, and the value of the new total surplus? d. Indicate dead weight loss on the graph and calculate its value. e. Referring once again to the table above, what can we say about the relationship between MC and ATC over the range of output? f. And what can we say about the relationship between MR and MC at the profit- maximizing level of output?

Answer 1

Qs	Price	Qd	TR	MR	FC	VC	TC	MC	ATC	Profit
6	30	0	0	-	6	0	6	-	-	-6
5	25	1	25	25	6	1	7	1	7	18
4	20	2	40	15	6	3	9	2	4.5	31
3	15	3	45	5	6	7	13	4	4.3	32
2	10	4	40	-5	6	13	19	6	4.7	21
1	5	5	25	-15	6	22	28	9	5.6	-3
0	0	6	0	-25	6	33	39	11	6.5	-39

FC is same at all levels of output.

TC = VC + FC

TR = Qd * Price

MRn = TRn - TRn-1 where n is Quantity demanded.

ATC = TC / Qd

Profit = TC - TR

a) / b)

c) Consumer surplus pre price floor is area of triangle ABD whose sum is (1/2) * (3 - 0) * (30 - 15) = 22.5

Producer surplus pre price floor is area of triangle BCD whose sum is (1/2) * (3 - 0) * (15 - 0) = 22.5

Consumer surplus post price floor is area of triangle AEG whose sum is (1/2) * (2 - 0) * (30 - 20) = 10

Producer surplus post price floor is area of triangle FHC + area of rectangle EGHF whose sum is (1/2) * (2 - 0) * (10 - 0) + (20 - 10) * (2 - 0) = 10 + 20 = 30

d) Deadweight loss is area of triangle GDH whose sum is (1/2) * (3 - 2) * (20 - 10) = 5

e) MC is less than ATC till profit is rising while MC is more than ATC when profit starts falling.

f) At maximum level of output, MR should be either equal to MC or closest to it.