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In: Economics

Assume that: market demand function for a product is: P = 80 − q and marginal...

Assume that: market demand function for a product is: P = 80 − q and marginal cost (in dollars) of producing it is: MC = 1q, where P is the price of the product and q is the quantity demanded and/or supplied. Also assume that the government imposes a price control at P = $80/3

a) Find the consumer and producer surplus associated with the price control allocation.

b) How would the price control allocation in (a) differ from the monopoly allocation, if you assume that the market is controlled by a monopoly. Hint: Compute consumer and producer surplus in each case.

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Rahul Sunny answered 2 years ago
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