Figure 9.1.1
-Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;
A) $0.
B) $100.
C) $800.
D) $1200.
E) $2000.

Question

Figure 9.1.1
-Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;
A) $0. 
B) $100. 
C) $800. 
D) $1200. 
E) $2000.

Quizplus · Accepted Answer

In equilibrium, total surplus is maximized. Total surplus is the sum of consumer surplus and producer surplus. From the graph, consumer surplus is the area above price and below the demand curve, which is a triangle with a base of 8 and a height of 20, so consumer surplus is (1/2) x 8 x 20 = $80. Producer surplus is the area below price and above the supply curve, which is a triangle with a base of 8 and a height of 20, so producer surplus is (1/2) x 8 x 20 = $80. Total surplus is the sum of consumer surplus and producer surplus, which is $80 + $80 = $160. There are 12 units being traded at a price of $20, so the total revenue is 12 x $20 = $240. Since the cost of production for each unit is $20, total cost is 12 x $20 = $240. Therefore, profit is total revenue minus total cost, which is $240 - $240 = $0. Total consumer and producer surplus is $160, which is the answer choice D.

Figure 9.1.1 -Refer to Figure 9.1.1 Above. If the Market Is in Is