Table: Lunch Quantity Demanded 0 10 20 30 40 50 60 Price $10 4 Reference: Ref 13

Question

Table: Lunch Quantity Demanded 0 10 20 30 40 50 60 Price $10 4 Reference: Ref 13-8 (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people taking all-day rafting trips on the river. The marginal cost and average cost of each lunch are a constant $4. If Joe is one of many firms in a competitive industry, what is deadweight loss in the long run? $180 $0 $360 Table: Lunch Quantity Demanded Price S10 10 20 30 40 50 60 4 Reference: Ref 13-8 (Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people taking all-day rafting trips on the river. The marginal cost and average cost of each lunch are a constant $4. If Joe is a monopolist, what is producer surplus in the long run? $45 $90 $360 $180

Explanation / Answer

1) In a competitive industry, there is no deadweight loss.

Option 2 is correct (DWL = $0)

2)

TR = P x Q

MR (nth unit) = (TR (Qn) - TR (Qn-1))/ (Qn - Qn-1)

Profit would be maximized where MR > = MC for the last unit produced.

Q = 30 and P = $7

MC = $4

Producer surplus = Q x (P - MC) = $90 (option 2 is correct)

3)

Profit maximizing price in a competitive firm: P = MC = $18

Therefore, Producer surplus = $0

Option 4 is correct

P ($) Q TR ($) MR ($) 10 0 0 9 10 90 9 8 20 160 7 7 30 210 5 6 40 240 3 5 50 250 1 4 60 240 -1

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