Asked by Ashley Rodgers on Jun 30, 2024
Verified
Refer to Scenario 10.9. At the profit maximizing level of output, what is the level of producer surplus?
A) 0
B) 1,800
C) 5,400
D) 7,200
E) 9,600
Producer Surplus
The difference between what producers are willing to sell a good for and the price they actually receive, representing profit.
Marginal Revenue
Marginal revenue is the additional income generated from the sale of one more unit of a product or service.
Profit Maximizing
The process or strategy of adjusting production and operations to achieve the highest possible profit from business activities.
- Evaluate the repercussions of monopolistic pricing on the welfare of consumers and producers.
- Evaluate the magnitude of deadweight loss, consumer, and producer surplus in environments characterized by monopolistic markets.
Verified Answer
ST
Shiju T JoseJul 01, 2024
Final Answer :
C
Explanation :
To find the profit-maximizing level of output, we set MR = MC: 360 - 8Q = 4Q, solving for Q gives Q = 30. To find producer surplus, we need to calculate the area of the triangle formed by the MC curve from 0 to Q and the price at Q. The price at Q can be found from the demand curve: P = 360 - 4(30) = 240. The cost to produce 30 units is the area under the MC curve, which is 1/2 * 30 * 120 = 1,800 (since MC = 4Q, at Q=30, MC = 120). Producer surplus is total revenue minus total cost. Total revenue at Q = 30 is 30 * 240 = 7,200. Thus, producer surplus = 7,200 - 1,800 = 5,400.
Learning Objectives
- Evaluate the repercussions of monopolistic pricing on the welfare of consumers and producers.
- Evaluate the magnitude of deadweight loss, consumer, and producer surplus in environments characterized by monopolistic markets.