03 Question (3 points) See page 344 The figure below shows the market for one ho
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03 Question (3 points) See page 344 The figure below shows the market for one hour of economics tutoring at your college. Imagine that the market for economics tutoring could be perfectly competitive, controlled by a monopolist who charges a single price or a monopolist who charges each customer a different price. Use the information in the diagram to answer the questions below Price 100 MC MR 100 200 2nd attempt Part 1 (1point) 9 See Hint How much is total surplus if the market is perfectly competitive? Part 2 (1point) 9 See Hint How much is total surplus if the market is controlled by a single-price monopolist? Part 3 (1point) ? See Hint Suppose the single-price monopolist started charging all customers the maximum price they are willing to pay. How much additional surplus is created?Explanation / Answer
Part 1). Solution :- Calculation of total surplus when the market is perfectly competitive :-
Total surplus = Consumer surplus + Producer surplus.
Consumer surplus = 0.5 * 200 * (100 - 20)
= 0.5 * 200 * 80
= $ 8000.
Producer surplus = 0.5 * 200 * (20 - 0)
= 0.50 * 200 * 20
= $ 2000.
Total surplus = 8000 + 2000
= $ 10,000.
Conclusion :- Total surplus when the market is perfectly competitive = $ 10000.
Part 2). Solution :- Calculation of total surplus when the market is governed by single price monopolist :-
Total surplus = Consumer surplus + Producer surplus.
Consumer surplus = 0.50 * 100 * (100 - 60)
= 0.50 * 100 * 40
= $ 2000.
Producer surplus = (60 - 20) * 100 + 0.50 * 20 * 100
= 40 * 100 + 1000
= 4000 + 1000
= $ 5000.
Total surplus = 2000 + 5000
= $ 7,000.
Conclusion :- Total surplus when the market is governed by single price monopolist = $ 7,000.
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