Question

The corn market is perfectly competitive, and the market supply and demand curves are given by...

The corn market is perfectly competitive, and the market supply and demand curves are given by the following equation: Qd =50,000,000 – 2,000,000 p Qs = 10,000,000 +5,500,000 p Where Qd and Qs are quantity demanded and quantity supplied measured in bushels, and P= price per bushel.

1) Determine consumer surplus at the equilibrium price and quantity.

Homework Answers

Answer #1

1) Equilibrium occurs at that level of price at which Quantity demand = quantity supplied.

Given: Qd =50,000,000 – 2,000,000p and Qs = 10,000,000 +5,500,000p

=> 50,000,000 – 2,000,000p = 10,000,000 +5,500,000p

=> 500 – 20p = 100 +55p

=> 400 = 75p

=> p = 5.33 and q = 39333333.33

Consumer surplus is the area above price line and below demand curve.

Y intercept(point at which q = 0) = 25

Hence consumer surplus = (1/2)(39333333.33)(25-5.33) = 386843333.30

Hence At equilibrium, consumer surplus = 386843333.30

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