Question 3
A Professor of Economics from the Department of Economics Education
of the Faculty of Social Sciences Education of the University of
Education, Winneba, has estimated the demand and supply functions
for students’ accommodation on campus to be respectively:
10p +3Q=60
and
p=Q-0.5
Further, the professor claims that the average cost of Hostel
operators is
AC=20/Q +1 + 0.2Q
If the hostel operators decide to maximize sales revenue instead of profit, show how this will affect consumer’s surplus. What is the producer’s surplus under pure competition at the equilibrium point?
if hostel operators maximize profit
if hostel operator maximize revenue
If the hostel operators decide to maximize sales revenue instead of profit consumer surplus increases from 3.75 to 15
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