On December 31, Year 1, Gaskins Co. owed $4,500 in salaries to employees who had worked during December but would be paid in Jan
1 answer:
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Given:
The demand and supply functions are:
To find:
i. The equilibrium price and the equilibrium quantity.
ii. The consumer surplus .
iii. The producer surplus.
Explanation:
(i) At equilibrium, the demand and supply are equal. So, equating both functions, we get
Divide both sides by 8, we get
Putting in the demand function, we get
Therefore, the equilibrium price is 50 and the equilibrium quantity is 350.
(ii)
The area under the demand curve and above the equilibrium price is known as consumer surplus. It is represent by the green area in the below figure.
The area of a triangle is:
So, the area of consumer surplus is:
Therefore, the consumer surplus is 3750.
(iii)
The area above the supply curve and below the equilibrium price is known as producer surplus. It is represent by the purple area in the below figure.
So, the area of producer surplus is:
Therefore, the producer surplus is 6250.
