Question

When the fully competitive market becomes an exclusive market, prices rise compared to the fully competitive market and production decreases, resulting in a wellfare loss in society as a whole. Let's say that the market demand curve is given as P=20-2Q, and the marginal cost curve, which can be considered a supply curve, is constant with MC = 4.
(1) In a fully competitive market, seek the size of social benefits
(2) Find the size of social benefits in the case of an exclusive market
3.Find the magnitude of the loss of benefits that occurs when a fully competitive market becomes an exclusive market.

plzplz write briefly neatly i cant see cursive handwriting 0.0

Answer 1

(1) competitive market:

social benefit = $64

20-2Q=4. So Q = 8; P= 4

Social benefit = 1/2 * (highest willingness to pay-price)* quantity

= 1/2* (20-4)*8. = 64

(2) exclusive market:

social benefit = $48

output is where MC =MR ; MR = 20- 4Q (double slope of demand curve)

20 -4Q =4. So, Q=4; plugging in value of q in demand function for p:

20- 2*4= 12 ; P= 12

social benefit = consumer surplus +producer surplus

consumer surplus = 1/2*(20- 12)*4. = 16

Producer surplus = (12-4)*4. = 32

social benefit = 16+32 =48

(3) loss of benefit= $16

loss of benefit or deadweight loss = 1/2*(price-MC)*lost quantity

= 1/2*(12-4)*(8-4). = 1/2*8*4. = 16