Suppose that market demand is Q = 660 - 12P and marginal cost is MC = 5. The consumer surplus in a perfectly competitive market is $____, while the consumer surplus in a monopoly market is $ ___.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, price equals marginal cost, so P = 5. Plugging into the demand equation, Q = 660 - 12(5) = 600. Consumer surplus is the area of the triangle with base 600 and height (55 - 5) = 50, which is (1/2)*600*50 = 15,000. In a monopoly, the monopolist sets MR = MC. The MR curve is Q = 660 - 24P. Setting MR = MC gives 660 - 24P = 5, solving gives P = 27.29, Q = 336.52. Consumer surplus is (1/2)*(660 - 336.52)*(55 - 27.29) = 3,750.

Suppose That Market Demand Is Q = 660 - 12P