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3 years ago

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A firm with market power has an inverse demand curve of P = 450 – 5Q and marginal cost of MC = 40Q, where Q is measured in thous

ands. What is the deadweight loss from market power at the firm's profit-maximizing output level?
A. $280,000
B. $9,400
C. $22,500
D. $15,000

1 answer:

seraphim [82]3 years ago

7 0

I believe the answer is b

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3 years ago

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4 years ago

Read 2 more answers

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net wortht -143,280.85

equivalent annual cost $ 24,932.98

Explanation:

We sovle for the present value of each annuity:

<em><u>The first three years:</u></em>

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 31,000.00

time 3

rate 0.08

$31000 \times \frac{1-(1+0.08)^{-3} }{0.08} = PV\\$

PV $79,890.0066

<em><u>Then the second phase annuity:</u></em>

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 20,000.00

time 5

rate 0.08

$20000 \times \frac{1-(1+0.08)^{-5} }{0.08} = PV\\$

PV $79,854.2007

NOw, we discount this as it is three years into the future

$\frac{Maturity}{(1 + rate)^{time} } = PV$

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time 3.00

rate 0.08000

$\frac{79854.2007415617}{(1 + 0.08)^{3} } = PV$

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Total net worth:

79,890.0066 - 63,390.8391 = -143,280.85

The EAC will be the annuity which makes the Present work

$PV \div \frac{1-(1+r)^{-time} }{rate} = C\\$

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rate 0.08

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$143280.85 \div \frac{1-(1+0.08)^{-8} }{0.08} = C\\$

C $ 24,932.983

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