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Concept explainers
Calculation of
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Explanation of Solution
Case A:
In case “A”, profit-maximizing quantity (PMQ) can be calculated as follows:
The profit-maximizing output is 20 units.
Substitute the profit-maximizing output in
The profit-maximizing price is $30.
Socially-optimal quantity (SOQ) can be calculated as follows:
The socially-optimal quantity is 40.
Substitute the sociality-optimal output in demand equation to calculate the socially-optimal price (SOP).
The socially-optimal price is $10.
The deadweight loss is calculated as follows:
The deadweight loss is $200.
Case B:
In case “B”, the profit-maximizing quantity (PMQ) can be calculated as follows:
The profit-maximizing output is 22.5 units.
Substitute the profit-maximizing output in demand equation to calculate the profit-maximizing price (PMP).
The profit-maximizing price is $55.
The socially-optimal quantity (SOQ) can be calculated as follows:
The socially-optimal quantity is 45.
Substitute the sociality-optimal output in demand equation to calculate the socially optimal price (SOP).
The socially-optimal price is $10.
The deadweight loss is calculated as follows:
The deadweight loss is 506.25.
Case C:
In case “C”, the profit-maximizing quantity (PMQ) can be calculated as follows:
The profit-maximizing output is 20 units.
Substitute the profit-maximizing output in demand equation to calculate the profit-maximizing price (PMP).
The profit-maximizing price is $60.
The socially-optimal quantity (SOQ) can be calculated as follows:
The socially-optimal quantity is 40.
Substitute the socially-optimal output in demand equation to calculate the socially optimal price (SOP).
The socially-optimal price is $20.
The deadweight loss is calculated as follows:
The deadweight loss is $400.
Concept introduction:
Deadweight loss: The fall in total surplus that results from a market distortion is termed as deadweight loss.
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Chapter 13 Solutions
Modern Principles of Economics
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