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Economics: Dead Weight Loss

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Dead weight loss is determined.

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TC=50-5q+q^2
Average cost=TC/q=(50-5q+q^2)/q=(50/q)-5+q
Firm's fixed costs can be calculated by putting Q=0
TFC=50-5*0+0^2=50
Average fixed costs, AFC=TFC/q=50/q
Total Variable Cost (TVC) is given by
TVC=TC-TFC=-5q+q^2
Average variable cost (AVC) is given by
AVC=TVC/q=(-5q+q^2)/q=-5+q

For equilibrium price, put Qd=Qs
5000-600P=1000+200P
800P=4000
P=4000/800=5
Qd=1000+200*5=2000
Qs=5000-600*5=2000
Market equilibrium price =$5
Each firm is a price taker in perfectly competitive environment. It will select its output such that MR=MC=P to maximize its profits.
2q-5=5
2q=10
q=10/2=5
Each typical potato firm will produce 5 units and sell at a price of $5 per unit.

Total Revenue at optimal ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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