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Calculating consumer and producer surplus

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Use the following data for the exercises below.

Price Quantity Supplied Quantity Demanded
$20 30 0
$18 25 5
$16 20 10
$14 15 15
$12 10 20
$10 5 25
$8 0 30

a. What is the equilibrium price and quantity?

b. Draw the demand and supply curves. If this represents perfect competition, are the curves individual firm or market curves? How is the quantity supplied derived?

c. Show the consumer surplus. Show the producer surplus.

d. Suppose that a price ceiling of $12 was imposed. How would this change the consumer and producer surplus? Suppose a price floor of $16 was imposed. How would this change the consumer and producer surplus?

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Solution Preview

Please refer attached MS Excel file for graphs. Formatting of graphs may change depending upon the version of MS Excel. So, images of solution are also attached for better clarity.

Solution:

a. What is the equilibrium price and quantity?
Equilibrium price is the price at which quantity demanded is equal to quantity supplied. If we refer above table, we find that at a price of $14, quantity demanded is equal to quantity supplied i.e. 15
So, equilibrium price = 14
So, equilibrium quantity = 15

b. Draw the demand and supply curves. If this represents perfect competition, are the curves individual firm ...

Solution Summary

Solution describes the steps to calculate consumer and producer surplus in the absence of any price regulation in the given case. It also calculates consumer and producer surplus in case of price ceiling and price floor. Calculations are explained with the help of suitable graphs.

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See Also This Related BrainMass Solution

Calculating a Monopolist's Consumer and Producer Surplus

1. A monopolist faces demand given by: P=100-4Q and has marginal costs given by: MC=10+2Q
a. Draw the demand, marginal revenue and marginal cost curves. Calculate and show how much this firm will sell and what it will charge.
b. Calculate the producer surplus with monopoly and the consumer surplus with monopoly.
c. How much would be produced if this were a competitive market? What would be the price?
d. Calculate the consumer and producer surplus for a competitive market.

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