Question

1. Using the graph below to answer the questions. 120 100 Price (S/textbook) MR 50 100 150 200 250 300 Quantity (textbooks/week) a. What price and quantity combination would a perfectly competitive (efficient) market establish? 1 point b. Compute the value of consumer and producer surplus at the efficient market equilibrium. 1 point c. What price and quantity combination would an imperfectly competitive (profit maximizing) firm establish? 1 point d. Compute the value of consumer and producer surplus at the profit maximizing output (Q): 1 point

Answer 1

a) Setting P=MC

Price = 60

Quantity = 150

b) CS = 0.5*150*(120-60) = 4500

PS = 0.5*150*(60-0) = 4500

c) Setting MC=MR

Price = 80

Quantity = 100

d) CS = 0.5*100*(120-80) = 2000

PS = 0.5*100*(40-0) + 100*(80-40) = 2000+4000 = 6000