Purchase Solution

Calculating deadweight loss in the given case

Not what you're looking for?

Ask Custom Question

Brown guitar company hires you to consult and you estimate the demand for guitars to be Q=9000-6P. The supply of guitars is given by Q= -3000+9.

1 What is the equilibrium price and quantity of guitars?

2 What is the price elasticity of demand at the equilibrium price and quantity?

3 What is the price elasticity of supply at the equilibrium price and quantity?

If a per-unit excise tax of $ 90.00 per guitar is levied on the consumers, what price would consumers pay after the tax is levied ? What proportion of tax will be paid by the supplies of guitars? How many guitars will be sold after tax is imposed? How much consumer surplus do consumers get after the tax? What is the dead weight loss created by tax?

Purchase this Solution
Solution Summary

Solution determines equilibrium parameters, price elasticity of demand and supply and dead weight loss created by tax.

Solution Preview

Please refer attached file for graph and tables.

1 What is the equilibrium price and quantity of guitars?
Qd=9000-6P
Qs=-3000+9P
In equilibrium Qs=Qd
-3000+9P=9000-6P
15P=12000
P=800
Qd=9000-6*800=4200
Qs=-3000+9*800=4200

Equilibrium quantity=4200
Equilibrium price=$800

2 What is the price elasticity of demand at the equilibrium price and quantity?
Equilibrium Price, P=800
Equilibrium Quantity, Q=4200

Qd=9000-6P
On differentiating with respect to P, we get
dQd/dP=-6
Price elasticity of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • Consumer surplus, producer surplus and deadweight loss

    In case of monopoly, the firm has the power to influence the pricing and control over the market. Hence prices are lower and quantities are higher in case of perfect competition.

  • Consumer Surplus, Producer Surplus, Consumer Deadweight Loss, and Producer Deadweight Loss

    Consumer Deadweight loss in various scenarios You can see that the consumer deadweight loss is very much dependent on the shape of the demand curve.

  • Deadweight loss

    289868 Deadweight loss ? Studies have concluded that the deadweight loss of monopoly power in the US is less than 0.5 percent of GNP. From your knowledge of the determinants of the deadweighlt loss, explain why such a small figure is plausible.

  • deadweight loss of monopoly

    The deadweight loss is the traingle between price line for monopoly Pm and price line for competitive market Pc and demand curve. In the given figure the deadweight loss is the area covered by the triangle ABC.

  • problems dealing with a monopoly marginal cost

    Therefore, in this case we conclude that: PS increases, CS decreases (to zero), the deadweight loss decreases (to zero) and total surplus increases.

  • consumer surplus

    What is the value of the "deadweight loss" from monopolization Please see the attached file. The expert calculates the profit-maximizing price-quantity combination.

  • Deadweight Loss and Taxation

    The graphs can assure us that a given level of tax, say T =150, would generate revenue. The deadweight loss will always increase as T increases, as we can see from the equation deadweight loss = T^2)/3.

  • deadweight loss

    What is the price at this output level? What are the monopolist's profits? What is the deadweight loss (in dollars)? Why does deadweight loss arise?

  • Equilibrium deadweight loss in duopoly

    Equilibrium deadweight loss in Cournot duopoly given demand and cost functions

  • profit-maximizing output and price

    The competive outcome comes where P = MC that is 100 -2Q = 20 or 2Q = 80 or Q =40 So, the deadweight-loss with monopoly is represented by the area of the triangle abc in the above diagram.

View More Related Solutions