Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72.
Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.8P
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Please answer Section C & D of this question showing all workings and graphs
Transcribed Image Text:(c) Calculate the
(i) price observed in the market, 77
(ii) the consumer surplus,
(iii) the producer surplus,
(iv) deadweight loss,
Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current
level of $72.
d) Calculate
(1) the consumer surplus,
(ii) the producer surplus,
(iii) deadweight loss,
Option 1
Option 2
None
(e) Which of the two options would the producers prefer?
(1) Which of the two options would be preferred by society?
+
Transcribed Image Text:A market has a demand function given by the equation Qd = 180-2P, and a supply function is given by the equation Qs = -15 + P. The
market is government-regulated, with price support per unit and production quotas. (NOTE: A production quota restricts the quantity of the good
that can be produced. Firms are not allowed to produce more than the quota)
(a) If the price is $72 per unit, what production quota is needed to ensure no shortages or surpluses? (HINT: Sketch the supply and demand
equations.) 36
(b) Considering the price support and the quota, calculate
(1) the consumer surplus, 324
(ii) the producer surplus, 1404
(iii) deadweight loss, 147
Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190-2P. The government is trying
to decide between two options:
• Maintain the number of quotas and let the market adjust, or
• Maintain price support and increase the number of quotas.
Suppose the government decides to maintain the number of quotas and adjust the market.
(HINT: Sketch the supply and demand equations.)
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