Question

Consider the following conditions: A market with 10 identical firms: Market price = $20, Each firm has a marginal cost (MC) of production of 2q. MC = 29 Calculate the market producer surplus: $ (enter your answer as a whole number).

Answer 1

Answer:

Given, marginal cost of each firm, MC=2q and market price, P=$20

We know that profit maximizing output condition, P=MC=>P=2q=>q=P/2 which is individual supply function.

Thus the market supply function with 10 identical firms, Q=10*q=>Q=10*(P/2)=5P=>P=Q/5

and Q=5P=5*20=100

Thus, market price, P=$20 and market supply is Q=100

Now we know that,

100 1 Producers' Surplus = P*Q- 5 Odo

i.e.

1002 Producers' Surplus = 20 * 100 – = 2000 - 10000 10

=> Producers' Surplus = 2000 – 1000 = 1000

Thus the market producers' surplus=$1000