Question

i dont know how to count the producer surplus of the question

(4) [5 Marks You are a monopolist constrained to charging the same price for each unit who faces a standard linear demand curve. You have correctly calculated that your profit maximizing price is $10 and you would sell 1000 units at this price. TFU: A price ceiling set at P $9 reduces your short-run profits by $1000 Suggested Solution: False. Your short-run profits (i.e., fixed costs minus producer surplus) decrease by less than $100. For the 1000 items you would have sold at P $10, you lose $1 in surplus on each for a reduction of $1000. However, you will sell more units at P $9, and you make some PS on each of these extra units Note: You lost marks if you wrote that this could increase profits. As producer surplus, and thus profits, are maximized at P $10, profits must be less at any other price

Answer 1

MC Demand curve MR Q-1000

The producer surplus is the excess money over the cost the producer gets for each unit sold. I have drawn a standard demand curve,marginal cost curve and marginal revenue curve. Earlier the monopolist had found a profit-maximizing price=10$ at Q=1000 where MR meets the MC(you find the value of profit maximizing Q at where MR meets the MC and the Price as the Price on the Demand curve at that point at Q). = So his profits at that point were the area between the Price and MC that is Darkblue+Orange (he gets P-MC for each Q less than 1000)

After a price ceiling=9$,he loses a producer surplus = the orange area=1$*1000=1000$ but now he will produce more still as the demand increased from Q=1000 to a higher one according to the demand curve. So his surplus increased equal to the green area from the extra units produced

Overall the loss in producer surplus is lost since 10$ was the profit-maximizing price,he loses the orange producer surplus area equal to 1000$ but also gains green area in producer surplus but the green area is less than the orange area so overall there is a loss in producer surplus