Question

Suppose the demand schedule is LaTeX: Q_D\left(p\right)\:=\:40\:-\:\frac{p}{5} Q D ( p ) = 40 − p...

Suppose the demand schedule is LaTeX: Q_D\left(p\right)\:=\:40\:-\:\frac{p}{5} Q D ( p ) = 40 − p 5 . Profit maximizing firms have a constant marginal cost of 20. What is the deadweight loss if a price floor of 110 is imposed? (round your answer to one decimal place if necessary)

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Answer #2

Q = 40- p/5 ( based on the first sentence that says frac{p}{5})

So p/5 = 40-q

P = 200-5q

Mc = 20

Profit maximising price p= mc

200-5q=20

200-20 =5q

5q= 180

Q =180/5 = 36.

At price floor of p' = 110,

Q' = 40 - 110/5 = 40-22= 18.

Dead weight loss is the surplus lost is the area outlined in green

= 1/2 (110-20)*(36-18)

=0.5*90*18

=810

answered by: anonymous
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