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March 4, 2015

March 4, 2015

Posted by **Trisha** on Friday, June 24, 2005 at 1:03pm.

The market for product A has the following functions:

Market demand Q=1,000-4P

Market supply Q=1/2P

Inverse market demand P=250-.25Q

Marginal Revenue MR=250-.5Q

Total Cost TC=Q(squared)

Marginal Cost MC=2Q

a) Assuming product A is produced in a perfectly competitive market, compute the market's producer and consumer surplus.

b)Assuming product A is produced in a monopolistically ompetitive market, compute the firm's short-run maximum profit or loss.

Thanks!

For a) i get P=222.2, Q=111.11. Total consumer surplus is the area of the triangle above price and below demand = .5*(250-222.2)*111.11 = 1544.4. Total producer surplus is the area of the triangle below price and above supply = .5*222.2*111.11=12344.3

For b) i get P = 225, Q=100. (you take if from here)

I don't understand how the p=222.2 is calculated. I know where it is on the graph, but how do you get it? I thought it was MR=MC but that would be 100. Can you explain it?

Ok, in the competitive market, equilibrium is when supply=demand. From your equations, 1000-4P = 1/2P.

Solve for P. (I get 222.2).

For the monopolist, set MR=MC, and as you say, Q=100. From the demand curve, when Q=100 then P=225.

Oh, Okay. Thanks!

Referring back to problem b. It looks to me like Firm A has a short run max. profit rather than a loss. Right?

Right. You can calculate total profit as TR-TC (at price P and quantity Q).

TR=P*Q, and TC=Q^2.

same same. ATC is average total cost, which is TC/Q. Substitute this in for ATC and your get profit= (P - TC/Q)Q = PQ-TC. Since P*Q is total revenue, profit = TR-TC, which makes sense; profit is total revenues less total costs.

Thanks!

- ECON -
**vika**, Sunday, September 16, 2012 at 7:05amthe marginal cost of plat producing paper materials is represented by MC = 100 + 25Q. however, including the cost of wastes, the MSC = 100 + 50Q, where Q is the units of output. assume that in the competitive market the paper can be sold for $250.

how much will the firm produce if it does not consider the social cost of producing the paper?

what is the socially efficient level ot output?

please assist.

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