Assume the following values for figures 5.4a and 5.4b. Q1 = 20 bags, Q2 = 15 bag

Question

Assume the following values for figures 5.4a and 5.4b. Q1 = 20 bags, Q2 = 15 bags, Q3 = 27 bags. The market equilibrium price is $45 per bag. The price at 1 is $85 per bag. the price at c is $5 per bag. The price at f is $59 per bag. The price at g is $31 per bag. Apply the formula for the area of a triange (area = 1/2 x base x height) to answer the following questions. a. Total surplus / consumer surplus -- I already have this figured out. b. What is the dollar value of the deadweight loss when output level Q2 is being produced? What is the total surplus at Q2? c. What is the dollar value of the deadweight loss when output level Q3 is being produced? What is the total surplus at Q3?

Explanation / Answer

sol: CS=1/2(20-0)(85-45)=400 PS=1/2(20-0)(45-5)=400 TS=PS+CS=800 The efficient outcome is P=20 Q=45

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