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Q Search in Document Home Insert Design Layout References Mailings Review View Share Times New Ro- | 15 , A Av A. AaBbCcDdEe AaBbCDdEe AaBbCcDc AaBbCcDdE Heading 2 Heading 1 Refer to below figure to answer all questions. Consider this as a market for 2 year associates degree. The prices are expressed in 1000s of dollars and quantity is expressed in 1000s. 6- the maximum consumer surplus that can be achieved in this market 7- the maximum producer surplus that can be achieved in this market is 8- the maximum total surplus that can be achicved in this market is Price (privite eat 240 420 1- The private cost exceeds social value for what level of quantities? (please circle one) between 0 and 240 between 240 and 420 above 420 2- Taking into account only private value and private cost into account, find: i the maximum consumer surplus that can be achieved at the market equilibrium is Private value social value external benefit/ private cost circle one) 3- the maximum producer surplus that can be achieved at the market 4- the maximum totalsurplus that can be achieved at the market 5- Taking into account private costs, private value and external equilibrium is equilibrium is benefits, find: Page 2 of 2 2 Words English (US) Focus 98%Explanation / Answer
Question 1
The given figure shows that as quantity exceeds 240, private cost exceeds social value.
So, the private cost exceeds social value above 240.
Question 2
When private value and private cost are taken into account then market is in equilibrium with equilibrium price of $24,000 and the equilibrium quantity of 240,000.
The private value curve makes the Y-intercept at 36,000.
Calculate the Consumer Surplus -
CS = 1/2 * (Y-intercept - Equilibrium price) * Equilibrium quantity
CS = 1/2 * (36,000 - 24,000) * 240,000
CS = $1,440,000,000
The maximum consumer surplus is $1,440,000,000.
Question 3
When private value and private cost are taken into account then market is in equilibrium with equilibrium price of $24,000 and the equilibrium quantity of 240,000.
The private cost curve makes Y-intercept at 0.
Calculate the Producer Surplus -
PS = 1/2 * (Equilibrium price - Y-intercept) * Equilibrium quantity
PS = 1/2 * ($24,000 - $0) * 240,000
PS = $2,880,000,000
The maximum producer surplus is $2,880,000,000.
Question 4
Calculate the maximum total surplus -
Total surplus = Consumer surplus + Producer surplus
Total surplus = $1,440,000,000 + $2,880,000,000 = $4,320,000,000
The maximum total surplus is $4,320,000,000.
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