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AK_HW2

# AK_HW2 - Table 1 The Profits of Banana Co price profit...

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Unformatted text preview: Table 1: The Profits of Banana Co. price profit maximum P > 800 700 < P ≤ 800 ( P- 200) × 1 600 when P = 800 630 < P ≤ 700 ( P- 200) × 2 1000 when P = 700 600 < P ≤ 630 ( P- 200) × 3 1290 when P = 630 550 < P ≤ 600 ( P- 200) × 4 1600 when P = 600 300 < P ≤ 550 ( P- 200) × 5 1750 when P = 550 50 < P ≤ 300 ( P- 200) × 6 600 when P = 300 P ≤ 50 ( P- 200) × 7-1050 when P = 50 Answer Key for Homework #2 Question 1 (a) Bart and Selma will buy. The total consumer surplus is 101 (Bart’s net benefit) + 1 (Selma’s net benefit) = 102. (b) The total consumer surplus is 0 (Homer) + 200 (Bart) + 30 (Lisa) + 100 (Selma) = 330. And the total revenue of Banana Co. is 600 × 4 = 2400. (c) Banana Co. should set the price below and at the same with 550. Thus, 550 is the maximum price it can set. (d) The total profit is the total revenue minus total cost. So, 550 × 5- 200 × 5 = 1750. (e) The table 1 shows profits of Banana Co. at each price level. From the Table 1, we can know that the profit is maximized when the price is 550. At the price, the profit is 1750. Then, the consumer surplus is (800- 550) + (700- 550) + (630- 550) + (600- 550) + (550- 550) = 530 . The producer surplus is 1750, which is the profit of Banana Co. (f) The table 2 shows consumer surplus, producer surplus, and economic surplus. From the Table 2, we can know that the economic surplus is maximized when the price is 50 < P ≤ 300. At this range, the consumer surplus is 3630- 7 P , and the producer surplus is (...
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AK_HW2 - Table 1 The Profits of Banana Co price profit...

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