Question

ADVANCED ANALYSIS Assume the following values for the figures below: Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market equilibrium price is $45 per bag. The price at a is $85 per bag. The price at c is $5 per bag. The price at f is $59 per bag. The price at g is $31 per bag. Apply the formula for the area of a triangle (Area = ½ × Base × Height) to answer the following questions. Instructions: Enter your answers as a whole number. a. What is the dollar value of the total surplus (= producer surplus + consumer surplus) when the allocatively efficient output level is produced? $ What is the dollar value of the consumer surplus at that output level? $ b. What is the dollar value of the deadweight loss when output level Q2 is produced? $ What is the total surplus when output level Q2 is produced? $ c. What is the dollar value of the deadweight loss when output level Q3 is produced? $

Answer 1

Answer:

Follows are the solution to the given question:

Explanation:

For point a:

When efficient level Q1 is produced, the dollar amount of the total surplus (production company excess plus its consumer excess) is provided

Surplus consumer area + Surplus manufacturer area

= Triangle Area ABC:

$= \frac{1}{2}\times ac \times Q_1 \\\\= \frac{1}{2}\times (85 - 5) \times 20 \\\\= \frac{1}{2}\times 80 \times 20 \\\\= \ 800$

So, the total amount of surplus in 5.4a is $800. The dollar value of its surplus is calculated by the output Q1

$= \frac{1}{2}( \text{choke price} - \text{equilibrium price}) \times \text{equilibrium quantity}\\\\= \frac{1}{2}\times (85 - 45)\times 20 \\\\ = \frac{1}{2}\times 40 \times 20 \\\\= 400$

so, the consumer surplus = $400.

For point b:

Whenever the output level Q2 is produced, the unit price of the loss of demise is calculated by the sheltered region in figure 5.4 a

= Triangle Area dbe:

$= \frac{1}{2} \times(de) \times (Q_1-Q_2) \\\\= \frac{1}{2} \times (55 - 35) \times 5 \\\\= \frac{1}{2} \times (20) \times 5 \\\\ = \ 50$

So, the deadweight loss = $50. The total surplus for output Q2 is determined by the trapezium suitable area

$= \frac{1}{2} \times (ac + de) \times Q_2\\\\= \frac{1}{2} \times (80 + 20) \times 15\\\\= \frac{1}{2} \times 100 \times 15\\\\= \ 750.$

So, the total surplus is $750

For point c:

The value of its deadweight loss in dollars in Q3 can be seen in figure 5.4b in the shaded area provided by

= The triangle area bfg

$= \frac{1}{2} \times (fg) \times (Q_3-Q_1)\\\\= \frac{1}{2} \times (59 - 31) \times 7 \\\\= \frac{1}{2} \times 28 \times 7 \\\\ = \ 98$

The deadweight loss is $98.

The total excess at output level Q3 is calculated by removing the deadweight loss from the maximum excess. It implies a quantity of between $800 - $98 = $702.

In the incident of oversupply, the consumer supply is, therefore, $702.