In a competitive market if demand is Q=10-2P, and the cost of production for all firms is 2Q, then in equilibrium: a) Quantity is 2 and price is equal to 4. b) Consumer surplus is 1. c) A unit tax of 2 would raise prices less than 2 because demand is inelastic at the optimal point.

In a competitive market if demand is Q=10-2P, and the cost of production for all firms is 2Q, then in equilibrium: a) Quantity is 2 and price is equal to 4. b) Consumer surplus is 1. c) A unit tax of 2 would raise prices less than 2 because demand is inelastic at the optimal point.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

In a competitive market if demand is Q=10-2P, and the cost of production for all firms is 2Q,

then in equilibrium:

a) Quantity is 2 and price is equal to 4.

b) Consumer surplus is 1.

c) A unit tax of 2 would raise prices less than 2 because demand is inelastic at the optimal point.

Consumer’s gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price and up to the equilibrium quantity. Consumer surplus is represented by area A.

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