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    Perfect Competition

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    Part A: I have drawn the demand curve and I have found the area of profit and the area of consumer surplus. The question says to compute the profit and consumer surplus. I have computed the profit, but I don't know how to compute the consumer surplus.

    Part B: I am completely clueless as how to check to see that the first 6 thousand book buyers on the demand curve are the ones that are willing to pay more than $12.
    As for the second part of B, how can you tell if the customers bought the book in the stores or online?

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    Solution Preview

    Problem 12
    (a) When a best-selling book was first released in paperback, the Hercules Bookstore chain seized a profit opportunity by setting a selling price of $9 per book (well above Hercules' $5 average cost per book). With paperback demand given by P = 15 - 0.5Q, the chain enjoyed sales of Q = 12 thousand books per week. (Note Q is measured in thousands of books.) Draw the demand curve and compute the bookstore's profit and the total consumer surplus.

    At Q = 12, P = 15 - 0.5*12 = 15 - 6 = $9
    Profit = PQ = 9*12 = $108,000
    Consumer surplus is the area below the demand curve and above the price ...

    Solution Summary

    The expert examines perfect competition for a demand curve.