Figure 15-5 Figure 15-5 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-5.Assume the firm maximizes its profits.What is the amount of consumer surplus?

Question

Figure 15-5  Figure 15-5 shows the cost and demand curves for a monopolist.
-Refer to Figure 15-5.Assume the firm maximizes its profits.What is the amount of consumer surplus?

Quizplus · Accepted Answer

Consumer surplus is the difference between the willingness to pay and the actual price paid by the consumer. In this case, the consumer surplus is the area below the demand curve and above the price charged (vertical distance between the price and demand curve). The consumer surplus can be calculated as the area of the triangle ABC, which is (½) x (10 x 14) = $70. Since there are two consumers buying at this price, the total consumer surplus is $70 x 2 = $140. However, one consumer is willing to pay $46, but pays only $14, which creates an additional consumer surplus of (½) x (9 x 32) = $144. Therefore, the total consumer surplus is $140 + $144 = $284. However, this is the total consumer surplus, including the surplus generated by the units sold above the equilibrium price. To obtain the consumer surplus at the equilibrium quantity and price, we need to subtract the surplus generated by the last unit sold (marked by D). The surplus generated by this unit is (½) x (5 x 10) = $25. Therefore, the consumer surplus at the equilibrium quantity and price is $284 - $25 = $259, which is closest to option (C).

Figure 15-5 Figure 15-5 Shows the Cost and Demand