The market for bread is competitive with the demand and supply functions as follow: • Supply: P=1+0.0025Q • Demand: P=5-0.0015Q i. Examine the equilibrium quantity and price of the market. Draw a diagram to illustrate the market equilibrium and size of consumer surplus, producer surplus and total economic surplus. ii. Suppose that the bakeries get together to form a cartel. They agree to raise the price to $4.5 and jointly cut production to supply the quantity of loaves that meets the quantity demanded at the cartel’s fixed price. Compare the new market quantity with the one without cartel and measure the sizes of consumer surplus, producer surplus, and deadweight loss caused by the cartel. You must illustrate the welfare loss with an appropriate diagram. Round your answers to 2 decimal places if necessary.
The market for bread is competitive with the
• Supply: P=1+0.0025Q
• Demand: P=5-0.0015Q
i. Examine the
illustrate the
and total economic surplus.
ii. Suppose that the bakeries get together to form a cartel. They agree to raise the
price to $4.5 and jointly cut production to supply the quantity of loaves that
meets the quantity demanded at the cartel’s fixed price. Compare the new
market quantity with the one without cartel and measure the sizes of consumer
surplus, producer surplus, and
illustrate the welfare loss with an appropriate diagram. Round your answers to
2 decimal places if necessary.
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