Homework 5 Answers

# Plug the prices into the demand equations for good 1

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Unformatted text preview: g the prices into the demand equations. For good 1: . For good 2: . Now we can plug these quantities into the TR equation. total cost, plus the quantities into the TC equation given in the problem. . Yes, the firm breaks even. . To get b. What is consumer surplus? Consumer surplus is the area under the demand curve above the price, as shown in class. To calculate this area, use the formula for the area of a triangle where the base is the quantity demanded and the height is the choke price minus the price. Remember, the choke price is where the demand curve intersects the y-axis (the price at which no quantity is demanded). For good 1: ( )( ) ( )( For good 2: ( )( ) ( )( ) ) Total consumer surplus is the surplus from good 1 plus the surplus from good 2: . 2. Consider the prices in Set 2. a. What is total revenue under Set 2? What is total cost? Does the firm (approximately) break even? In order to calculate total revenue, we need to first find the quantity demanded for each good at the given prices. Plug the prices into the demand equations. For good 1: . For good 2: . Now we can plug these quantities into the TR equation. total cost, plus the quantities into the TC equation given in the problem. . . To get No, the firm does not break even. Total costs are significantly higher than total revenue. b. What is consumer surplus? Consumer surplus is the area under the demand curve above the price, as shown in class. To calculate this area, use the formula for the area of a triangle where the base is the quantity demanded and the height is the choke price minus the price. Remember, the choke price is where the...
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## This note was uploaded on 08/27/2012 for the course ECON 331 taught by Professor Juliebutler during the Spring '12 term at University of Tennessee.

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