# ch7 - Chapter 7, Efficiency and Exchange Monday, July 12...

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Chapter 7, Efficiency and Exchange Monday, July 12

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QUESTION 1 (equilibrium price) MB = 18 2Q MC = 6 + Q What is the price in equilibrium? A) 0 B) 6 C) 12 D) 10 E) 18
answer to question 1 MB = 18 2Q MC = 6 + Q What is the price in equilibrium? A) 0 B) 6 C) 12 D) 10 E) 18 18 2Q = 6 + Q 3Q = 12 Q = 4 MB = 18 8 = 10 MC = 6 + 4 = 10

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QUESTION 2 (consumer surplus) MB = 18 2Q If the price is 10, then how much consumer surplus is there? A) 16 B) 32 C) 24 D) 19 E) 3
answer to question 2 MB = 18 2Q If the price is 10, then how much consumer surplus is there? A) 16 B) 32 C) 24 D) 19 E) 3 .5 × b × h = .5 × 4 × 8 = 16

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FINDING CONSUMER SURPLUS USING TOTAL BENEFIT MB = 18 2Q TB = 18Q Q 2 CS = TB P × Q If the price is 10, then how much consumer surplus is there? P = 10, Q = 4 TB = 18(4) (4) 2 = 56 CS = TB P × Q = 56 40 = 16
PRODUCER SURPLUS MB = 18 2Q MC = 6 + Q P = 10 Q = 4 PS = .5 × b × h = .5 × 4 × 4 = 8

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FINDING PRODUCER SURPLUS USING VARIABLE COST MC = 6 + Q VC = 6Q + .5Q 2 P = 10, Q = 4 VC = 6(4) + .5(4) 2 = 24 + 8 = 32 Producer surplus is revenue minus variable cost PS = P × Q VC = 40 32 = 8
PRODUCER SURPLUS AND PROFIT Producer surplus is revenue minus variable cost PS = P × Q VC Total cost is variable cost plus fixed cost TC = VC + FC VC = TC FC PS = P × Q (TC FC) PS = P × Q TC + FC Profit is revenue minus total cost Π = P × Q TC So. .. PS = Π + FC or Π = PS FC If there is no fixed cost, PS = Π

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QUESTION 3 (producer surplus) MC = 10 + .5Q VC = 10Q + .25Q 2 If P = 40, how much is producer surplus? A) 900 B) 60 C) 1800 D) 40 E) 600
answer to question 3 (graphical method) MC = 10 + .5Q VC = 10Q + .25Q 2 PS = .5 × 60 × 30 A) 900 B) 60 C) 1800 D) 40 E) 600

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answer to question 3 (using variable cost) MC = 10 + .5Q VC = 10Q + .25Q 2 PS = P × Q VC VC = 10(60) + .25(60) 2 = 600 + 900 = 1500 PS = 2400 1500 = 900
MC = 100 + 2Q VC = 100Q + Q 2 If P = 400, how much is producer surplus? A) 30000

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## This note was uploaded on 08/03/2010 for the course ECON 1 taught by Professor Bergstrom during the Summer '07 term at UCSB.

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ch7 - Chapter 7, Efficiency and Exchange Monday, July 12...

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