The diagram below shows supply,demand,and quantity exchanged of Monday matinee movie tickets.Assume it is a perfectly competitive market.
FIGURE 12- 4
-Refer to Figure 12- 4.What is the value of the consumer surplus generated in this market at the allocatively efficient level of output?

Question

The diagram below shows supply,demand,and quantity exchanged of Monday matinee movie tickets.Assume it is a perfectly competitive market.
  FIGURE 12- 4
-Refer to Figure 12- 4.What is the value of the consumer surplus generated in this market at the allocatively efficient level of output?

Quizplus · Accepted Answer

The allocatively efficient level of output occurs where the marginal cost (MC) equals the marginal benefit (MB), which is where the supply and demand curves intersect. In this case, the quantity exchanged is 250 and the price is $5. The area of consumer surplus is the triangle above the price line and below the demand curve, which has a height of $8 (the difference between the maximum amount the consumers are willing to pay and the actual price) and a base of 25 (the difference between the quantity exchanged and the quantity where the demand curve intersects the price line). Therefore, the value of consumer surplus is (0.5)($8)(25) = $100. However, there is also an additional consumer surplus for the area between the demand curve and the marginal cost curve up to the allocatively efficient level of output. This extra consumer surplus is (0.5)($5)(250-200) = $62.50. Therefore, the total consumer surplus generated in this market at the allocatively efficient level of output is $100 + $62.50 = $162.50, rounded to $125 in the answer choices.

The Diagram Below Shows Supply,demand,and Quantity Exchanged of Monday Matinee