Question

In: Economics

Suppose the market demand function for a normal product is ? = ?? − ?, and...

Suppose the market demand function for a normal product is ? = ?? − ?, and the marginal cost of producing it is ?? = ?? , where, ? is the price of the product and ? is the quantity demanded and/ supplied.

a. Draw the demand curve and the marginal cost curve using price and marginal cost measure in vertical axis and quantity demanded and/ or supplied in horizontal axis.

b. How much would be equilibrium price and quantity supplied in the competitive market?

c. Calculate the consumer surplus, producer surplus and total surplus in competitive market structure.

d. Find the marginal revenue function of the product and the marginal revenue curve in the diagram drawn in part a.

e. How much would be equilibrium price and quantity supplied in the monopoly market?

f. Calculate the consumer surplus, producer surplus and total surplus in monopoly market structure.

g. Show that monopoly market allocation reduces social welfare compared to competitive market allocation.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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