ore: 0 of 1 pt |20f 14(14 complete) Hw Score: 64.29%, 9 of 14 Text Question 6.2
ID: 1120283 • Letter: O
Question
ore: 0 of 1 pt |20f 14(14 complete) Hw Score: 64.29%, 9 of 14 Text Question 6.2 Question Help Woz Enterprises specializes in electrical components. The market for one particular component is perfectly competitive and in long run equilibrium. The marginal cos is constant at 30. Woz can develop a much cheaper process for producing this component, lowering its marginal cost to 10. The R&D; cost of developing the new process would be F and Woz would be able to obtain a patent for it and become a monopoly supplier of this component. Demand for the product over the relevant period is given by p 46-20 Suppose the cost of the investment is F 122. Are consumers made better off by the actions taken by Woz? Does total surplus rise? HWoz invests, then the change in consumer surplus (ACS) is acs-sIEnteryour response as a whole number.Explanation / Answer
Under perfect competition price is $30 so quantity demanded is 30 = 46 -2Q
Q = 8 and so consumer surplus = 0.5*(46 - 30)*8 = $64. SInce P = MC, there is no producer surplus. Hence total surplus is 64
Under monopoly, quantity and price are
MR = MC
46 - 4Q = 10
Q = 9 and P = 46 - 2*9 = $28
Consumer surplus = 0.5*(46 - 28)*9 = $81.
Now change in consumer surplus = 81 - 64 = 17
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