Question

In: Economics

a) Demand for blue jeans in a competitive market is given by P=130-.003Qd. Supply for Blue...

a) Demand for blue jeans in a competitive market is given by P=130-.003Qd. Supply for Blue jeans is given by P=5+.002Qs. Assuming the market is taken over by a monopolist, how much surplus is lost by the market?

Solutions

Expert Solution

The marginal cost of a monopolist will be the same as the inverse supply curve. The aggregate marginal cost can only be obtained by inverting Qs = -2500 + 500P

We obtained 36.25 by putting Q = 15625 in the Marginal cost equation i.e MC = 5 + 0.002Q

Deadweight loss ( the loss in the surplus) is the area inside the triangle which is calculated by the area formula of a triangle i.e 1/2 * base * height which has come out to be 219726.5

Rahul Sunny answered 2 years ago
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