Assume we have the following simple Quantity Dependent demand and supply system for steel: Demand: Supply: Qa = 120 - 2 P Qs=8 P-80 Where Qa is the quantity of the commodity demanded at price P and Q is the quantity of the commodity supplied at price P. A: Draw the supply and demand curves for the above commodity. Clearly identify each curve and the horizontal and vertical intercept values for the demand curve. Also identify the vertical intercept value for the supply curve. BÜÄ B: Solve for the market equilibrium price and quantity. C: Calculate the numerical values for the consumer surplus and the producer surplus. D: Identify the consumer and producer surplus on the figure you graphed and carefully define the concept of both consumer and producer surplus. Explain why in the absence of externality a extern competitive market maximizes the sum of consumer and producer surplus. E: F: Numerically calculate total producer cost at the equilibrium quantity. Carefully identify the area of total cost on the figure you created using letters. Numerically calculate total consumer willingness to pay for the equilibrium level of the commodity. How does total consumer willingness to pay differ from the concept of consumer surplus? G: Derive the price dependent demand and supply system. Show you work! I have provided the correct answer for the price dependent equations so you can check your work. Demand: Supply: P=60-0.50 Qd (=MB function!) P = 10+ 0.125Qs (=MC, the private MC function) H. I. J. K. L. Carefully explain why the price dependent demand and supply functions are referred to as the MB and private marginal cost functions. Note that in equilibrium Qd=Qs and thus our author drops the subscripts on Q in the price dependent equations. Now assume there is a marginal external cost (MCE) associated with steel production and the external cost has the following form: MCE=0.375Q. Numerically derives the marginal social cost curve for steel production where marginal social cost is calculated as: MCS MCp+ MCE (or MSC = MPC + MCE as in lecture notation) = Draw a new graph that contains the MB curve, the marginal private cost curve (MCD) and the marginal social cost curve (MCs). Numerically solve for the socially optimal equilibrium price and quantity values. How do these values differ from the values you calculated in part B? Carefully identify the area of your graph that represents the net gain from moving to the socially optimal equilibrium point?

Assume we have the following simple Quantity Dependent demand and supply system for steel: Demand: Supply: Qa = 120 - 2 P Qs=8 P-80 Where Qa is the quantity of the commodity demanded at price P and Q is the quantity of the commodity supplied at price P. A: Draw the supply and demand curves for the above commodity. Clearly identify each curve and the horizontal and vertical intercept values for the demand curve. Also identify the vertical intercept value for the supply curve. BÜÄ B: Solve for the market equilibrium price and quantity. C: Calculate the numerical values for the consumer surplus and the producer surplus. D: Identify the consumer and producer surplus on the figure you graphed and carefully define the concept of both consumer and producer surplus. Explain why in the absence of externality a extern competitive market maximizes the sum of consumer and producer surplus. E: F: Numerically calculate total producer cost at the equilibrium quantity. Carefully identify the area of total cost on the figure you created using letters. Numerically calculate total consumer willingness to pay for the equilibrium level of the commodity. How does total consumer willingness to pay differ from the concept of consumer surplus? G: Derive the price dependent demand and supply system. Show you work! I have provided the correct answer for the price dependent equations so you can check your work. Demand: Supply: P=60-0.50 Qd (=MB function!) P = 10+ 0.125Qs (=MC, the private MC function) H. I. J. K. L. Carefully explain why the price dependent demand and supply functions are referred to as the MB and private marginal cost functions. Note that in equilibrium Qd=Qs and thus our author drops the subscripts on Q in the price dependent equations. Now assume there is a marginal external cost (MCE) associated with steel production and the external cost has the following form: MCE=0.375Q. Numerically derives the marginal social cost curve for steel production where marginal social cost is calculated as: MCS MCp+ MCE (or MSC = MPC + MCE as in lecture notation) = Draw a new graph that contains the MB curve, the marginal private cost curve (MCD) and the marginal social cost curve (MCs). Numerically solve for the socially optimal equilibrium price and quantity values. How do these values differ from the values you calculated in part B? Carefully identify the area of your graph that represents the net gain from moving to the socially optimal equilibrium point?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.10P

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