Question

please help!

Suppose that good X is perfectly divisible (you can buy non-integer quantilies). The marginal cost curve is given by MC 1.70+2 The demand curve is given by P -39-1.5Q, which gives MR 39-30 n the most efficient outcome (which perfectly competitive markets achieve), P-MC Solve the equilibrium pro e and quantity in The most efficient equilbrium quantity is The most officient equilibrium price is But a monopolist doos not produce the mos fficient price The most profitable quantity is The most profitable price is nd quantity, Instead, sove the monopolist's protit-maximizing price and quantity in the monopolist case We can see that consumer surplus decreases from So consumers prefer the efficient outcome in the efficient outcome to

Answer 1

For a perfectly competitive market:

P = MC

39 - 1.5Q = 1.7Q + 2

3.2Q = 37

Q = 37 / 3.2 = 11.56      [The most efficient equilibrium quantity]

P = 39 - 1.5(11.56) = $21.66      [The most efficient equilibrium price]

Consumer surplus = 0.5[(39 - 21.66) * 11.56] = $100.23

For a monopolist, the profit maximizing condition is:

MR = MC

39 - 3Q = 1.7Q + 2

4.7Q = 37

Q = 37 / 4.7 = 7.87        [The most profitable quantity]

P = 39 - 1.5(7.87) = $27.20     [The most profitable price]

Consumer surplus = 0.5[(39 - 27.20) * 7.87] = $46.43

We can see that consumer surplus decreases from $100.23 in the efficient outcome to $46.43 in the monopolist case.