Question

Monopoly

P= 120-Q C(q)= q²

MR = MC = 120-2Q = 2Q

Q^*= 30 P^*=90

a) What is consumer surplus

b) Producer surplus

c) dead weight loss

Answer 1

Answer.)

a.) Consumer surplus = [(1/2)(30-0)(120-90)] = 450

b.) Producer Surplus = Total revenue - total cost

=( Price × quantity )- (q² )

= 2700 - 900

= 1800

c.) Note Marginal cost is 2Q = 2(30) = 60.

Thus in case of perfect competition, price would be equal to 60 . Thus Consumer surplus in case of perfect competition would be

= [(1/2)( 60-0)(120-30)] = 2700

Remember that there is no producer surplus in case of perfect competition. Thus total surplus will be 2700.

Now, dead weight loss in case of monopoly will be

= Total surplus in case of perfect competition - total surplus in case of monopoly.

= 2700 - ( 450+1800)

=2700 - 2250

= 450