Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion, and government
1 answer:
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Answer:
a. Marginal Revenue = 5
b. Maximum profit = $144
c. Q optimum = 12 ; P optimum = $17
d. Social cost = $72
Explanation:
Step 1. Given information.
- MC=AC=5
- P=29-Q
Step 2. Formulas needed to solve the exercise.
- Total Revenue=TR=P*Q=(29-Q)*Q=29Q-Q2
- Marginal Revenue=dTR/dQ=29-2Q
Step 3. Calculation.
Set MR=MC for profit maximization
29-2Q=5
2Q=29-5
Q=12 -----profit maximizing output
P=29-Q=29-12=$17 -------profit maximizing price
Total Profit=(P-AC)*Q=(17-5)*12=$144 ------Maximum Profit
Lerner's Index=(P-MC)/P=(17-5)/17=0.7059
<h2></h2><h2>TAKE A LOOK TO THE ATTACHED IMAGE</h2>Profit is shown by rectangular shaded area.
Socially optimal price P=MC=$5 --------Socially optimal price
We know P=29-Q, Set P=5
5=29-Q
Q=24 ---------Socially optimal output
Social Cost is equal to dead weight loss. It is shown by triangular area DWL
Social Cost=1/2*(17-5)*(24-12) =$72
