The equilibrium price for a product traded in a competitive market is $4 and equilibrium quantity...
The equilibrium price for a product traded in a competitive market is $4 and equilibrium quantity is 10 million units. The cost of producing the the 5th unit of the product is $1 and a consumer is willing to pay $6 for the 5th unit of the product. The consumer surplus for the 5th unit of the product is __________ and the producer surplus for the 5th unit of output is ___________.
A. $6; $4
B. $4; $6
C. $4; $1
D. $2; $3
E. $3;$2
F. None of the above
Homework Answers
Since perfectly competitive firm profit-maximising condition is
P=MC
As it has been given that the equilibrium price for a product traded in a competitive market is $4 and equilibrium quantity is 10 million units. The cost of producing the the 5th unit of the product is $1 and a consumer is willing to pay $6 for the 5th unit of the product.
Since the consumer surplus is the difference of maximum willingness to pay for any good and price of that good. Hence the consumer surplus for the 5th unit of the product is =6-4
=$2
Since the producer surplus is difference between actual price and cost to producer.
Hence the producer surplus for the 5th unit of output is =4-1
=$3
Hence option d is the correct answer.
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