Post a New Question

ECON

posted by on .

I am working on this but, if I have part a and b wrong, all of the following question related will be wrong. Can you help me out?

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 - ,

    the 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.

Answer This Question

First Name:
School Subject:
Answer:

Related Questions

More Related Questions

Post a New Question