the market demand for a good is P = 90-Q. The good can be produced at...
the market demand for a good is P = 90-Q. The good can be produced at a constant cost of $10. How much producer surplus is created if the market is served by a monopolist as opposed to a competitive market?
Homework Answers
Answer
The monopolist produces at MR=MC
MR=90-2Q An MR curve is double sloped than an inverse linear demand curve.
MC=10
equating it
90-2Q=10
2Q=80
Q=40
P=90-40=50
PS =area below the demand curve and above price and left of the quantity so it is a rectangle area
=difference between MC and price * quantity
=(50-10)*40
=$1600
the producer surplus is $1600
The perfect competitive market has MC=P so there is no producer surplus so the producer surplus increases by $1600
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