Demand is represented by the equation, P = 200 - 2QD and supply by the equation P = 25 + 3QS.(a) Suppose this market produces 30 units of output.What price would this output be sold at if consumers we going to buy all goods? What is the marginal benefit to society of the 30^th unit? What is the marginal cost of the 30^th unit?
(b) What is consumer surplus if the market produces 30 units of output? What is producer surplus? What is the sum of consumer and producer surplus?
(c) What are the equilibrium price and quantity?
(d) What is consumer surplus at equilibrium? What is producer surplus? What is the sum of consumer and producer surplus?
(e) Is allocative efficiency achieved when the market produces 30 units of output? Explain in three different ways.

Question

Quizplus · Accepted Answer

The Answer is (a) The price is $140 [200 - 2(30)].The marginal benefit is $140.The marginal cost is $115 [25 + 3(30)].
(b) Consumer surplus is $900 [0.5($200 - $140) * 30].Producer surplus is $2100 [0.5($115 - $25) *30 + ($140 - $115) * 30].The sum of consumer and producer surplus is $3000.
(c) The equilibrium price and quantity are $130 and 35 units.
(d) Consumer surplus is $1225 [0.5($200 - $130) *35].Producer surplus is $1837.50 [0.5($130 - $25) * 35].The sum of consumer and producer surplus is $3062.50.
(e) Allocative efficiency is achieved when P = MC, when MB = MC, and when the sum of consumer and producer surplus is maximized.When 30 units of output are produced, P, which is $140, exceeds MC, which is $115.Also, MB, which is $140, exceeds MC, which is $115.Finally, the sum of consumer and producer surplus is $3000.However, this sum is not maximized.The sum can be as large as $3062.50.Therefore, on all three bases, allocative efficiency is not achieved at 30 units of output.There is an under allocation of resources to this industry.By shifting resources to this industry and increasing output to 35 units, allocative efficiency is achieved.

Demand Is Represented by the Equation, P = 200 -