Question

im not sure if i have the right answer when i do it and does the marginal cost increasing by constant amount of 10 have any impact on calculations

ECN502 Chapter 9: Valuing Costs and Benefits Exercise: Estimating the impacts of a policy on producers Suppose the government has introduced a resource policy for a preservation of a natural resource/environment. As a result, it has changed the production cost of the producers who use the natural resource and environment. More specifically, it has increased the marginal costs (MC) by constant amount of $10. Suppose the following information has given for estimating the impacts of the policy: Total cost function: TC = 100+ 10+ Demand function: 40 (constant regardless of the quantity of production) Find the impacts (change in the producer's surplus) of the policy.

Answer 1

we are given a market with perfectly elastic demand along with total cost function of the producer

Demand curve, P = 40

Total cost, TC = 100 + 10q + 1 * | - дис Marginal cost, MC = ? 2 + = 10 +

Equilibrium now will be at the point where, P= MC → 40 = 10+ = = 40 - 10 = = 2 * 30 = 60

Suppose a policy is passed which increases marginal cost by $10

:. MC = 20 + ? Equilibrium will be at the point where, P= MC → 40 = 20+! q=2* (40 – 20) = 2 * 20 = 40

Producer sur plus before policy = Area(ACE) = = * AC * CE 1800 (40 – 10) * (6 30 * 60 = = = $900 2 Producer surplus after policy = Area(CBE)=-*CB * CE1 = = *(40 – 800 20) * 40 = = * 20 * 40 = = $400

Decrease in producer surplus after policy = Areal AC E) - Area BCE) = 900 – 400 = $500

PRICE A COST mol 40 -Demand curve 2016 60 Scanned with 40 YOUTPUT CamScanner

MC is the marginal cost before policy MC' is the marginal cost after policy E is the equilibrium before policy Ei is the equilibrium after policy