$D _ { M }$ represents market demand, $S _ { F }$ represents the fringe supply curve, $D _ { R }$ represents the dominant firm's residual demand curve, $M R _ { R }$ represents the dominant firm's marginal revenue curve, and $M C$ represents the dominant firm's marginal cost curve.

-Consider the information above. In equilibrium, what will consumer surplus be?

Question

$D _ { M }$ represents market demand, $S _ { F }$ represents the fringe supply curve, $D _ { R }$ represents the dominant firm's residual demand curve, $M R _ { R }$ represents the dominant firm's marginal revenue curve, and $M C$ represents the dominant firm's marginal cost curve.

-Consider the information above. In equilibrium, what will consumer surplus be?

Quizplus · Accepted Answer

Consumer surplus is the area above the market price and below the demand curve. In this case, the equilibrium price is $15 and the equilibrium quantity is 540. Consumer surplus can be calculated by finding the area of the triangle formed by the demand curve, the price of $15, and the quantity of 540. This triangle has a base of 540 and a height of $25, which gives a consumer surplus of (1/2)($25)(540) = $6,750. However, the question asks for total consumer surplus, which includes the consumer surplus received by the fringe firms. We can find this by calculating the area of the triangle formed by the fringe supply curve, the price of $15, and the quantity of 260. This triangle has a base of 260 and a height of $20, which gives a fringe consumer surplus of (1/2)($20)(260) = $2,600. Adding the consumer surplus received by the dominant firm's residual demand curve, which is the difference between the demand curve and the dominant firm's marginal revenue curve, we get a total consumer surplus of $6,750 + $2,600 + $1,762.50 = $11,112.50. Therefore, the best choice is B, $9,112.50.

DMD _ { M }DM​ Represents Market Demand SFS _ { F }SF​

$D _ { M }$ Represents Market Demand $S _ { F }$