Assume Boeing Inc. (of the United States) and Airbus Industries (of Europe) rival for monopoly profits in the Canadian aircraft market. Suppose the two firms face identical cost and demand conditions, as seen in Figure 6.1.
Figure 6.1. Strategic Trade Policy: Boeing versus Airbus
-Consider Figure 6.1.At the monopoly price as established by Boeing, Canadian consumers realize $______________ of consumer surplus from the availability of aircraft.

Question

Assume Boeing Inc. (of the United States) and Airbus Industries (of Europe) rival for monopoly profits in the Canadian aircraft market. Suppose the two firms face identical cost and demand conditions, as seen in Figure 6.1.
Figure 6.1. Strategic Trade Policy: Boeing versus Airbus 
-Consider Figure 6.1.At the monopoly price as established by Boeing, Canadian consumers realize $______________ of consumer surplus from the availability of aircraft.

Quizplus · Accepted Answer

The consumer surplus can be calculated by finding the area beneath the demand curve but above the price. In this case, the consumer surplus is roughly bounded by the demand curve and the price of $80 million. The area of this triangle is 0.5 x base x height = 0.5 x 200,000 x 40,000 = $4 billion. Therefore, Canadian consumers realize $8 million ($4 billion in Canadian dollars) of consumer surplus from the availability of aircraft.