Suppose the market demand for honey can be described by P = 100 – 2Q, and that t
ID: 1141031 • Letter: S
Question
Suppose the market demand for honey can be described by P = 100 – 2Q, and that the beekeepers’ aggregate supply is given by P=20+3Q, where Q is the number of hives. Now suppose the neighbors are apple growers. Each hive of bees can help to raise the value of apple output by $10.
A. What is the private optimal number of hives the beekeepers will have?
B. Calculate the consumer surplus, producer surplus and external benefit for the private optimal outcome.
C. Calculate the total social surplus at the private optimal level.
D. What is social optimal number of hives the beekeepers will have?
E. Graphically show your results.
Explanation / Answer
(A) At optimal level market demand = aggregate supply
100-2Q = 20+3Q
5Q = 80
Q = 16 ; private optimal no. of hives is 16
(B) equilibrium price is 68
100 to 68 = 32
consumer surplus = 16/2 (32) = 256
20 to 68 = 48
producer surplus = 16/2 (48) = 384
(C) total social surplus = consumer surplus + producer surplus
= 256+384 = 640
(D) social optimal no. of hives =
100-2Q = 10+3Q
5Q=90
Q = 18
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.