advanced analysis Assume the
following values for Figures 4.4a and 4.4b: Q1 = 20 bags. Q2 = 15...

Question

advanced analysis Assume the
following values for Figures 4.4a and 4.4b: Q1 = 20 bags. Q2 = 15 bags. Q3 = 27
bags. The market equilibrium price is $45 per bag. The price at a 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 triangle (Area =
½ × Base × Height) to answer the following questions.

a. What is the dollar value of the
total surplus (producer surplus plus consumer surplus) when the allocatively
efficient output level is being produced? How large is the dollar value of the
consumer surplus at that output level? b. What is the dollar value of the
deadweight loss when output level Q2 is being produced? What is the total
surplus when output level Q2 is being produced? c. What is the dollar value of
the deadweight loss when output level Q3 is produced? What is the dollar value of
the total surplus when output level Q3 is produced?

Bidusha · Accepted Answer

Part A:
The following formula for the area of a triangle {Area = 1/2 (Base x Height)} is used to compute total surplus.
The overall economic surplus is the space between the demand schedule P = 85 - 2Q and the supply schedule P = 5 + 2Q for quantities ranging from 0 to 20. This is a triangle with a height of 20 and a base of 80 (the price difference at Q = 0, or points a and c) (the number of units purchased in equilibrium). We have a total surplus of (1/2) x 80 x 20 = 800 using these figures.
The region between the demand curve and the equilibrium price line is known as the consumer surplus. The price difference between the demand schedule price at Q = 0, which is $85, and the equilibrium price, which is $45, is 40. The triangle's height is 20 once more (the number of units purchased in equilibrium).

advanced analysis Assume the following values for Figures 4.4a and 4.4b: Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market equilibrium price is $45 per bag. The price at a is $85 per bag. The price...

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