In this case the deadweight will be less than 60 it

Info icon This preview shows pages 1–2. Sign up to view the full content.

In this case, the deadweight will be less than $60. It is significant to note that $60 should be an upper bound. The reason is that even when the $3 per unit difference between marginal benefit ($11) (as illustrated in the demand curve) and marginal cost ($8) (as indicated in the marginal cost curve) continued until the 200 th meal, the deadweight loss will still amount to $60, that is 20 units x $3 per unit. However, with the rising marginal cost for all these units and a falling demand curve, the deadweight loss will have to be lesser.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Surname 2 Question 2 The assumptions concerning a rival’s response to prices that underlie the kinked-demand curve include the following. Firstly, the competitors will match overall price changes. Secondly, the opponents will ignore any increase in prices. Thirdly, the kinked demand curve experiences sticky prices since the oligopolists increase rates to a level that is above the equilibrium price hoping that any other oligopoly firm will not take the decision. The gap in the marginal revenue arises from the abrupt change in the gradient of the demand curve at the standard price. The difference is also due to the sticky prices since the
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern