The willingness to pay for the private use of a sophisticated software is repres
ID: 1164799 • Letter: T
Question
The willingness to pay for the private use of a sophisticated software is represented by the inverse demand curve P=100-5Q (where “P” is price and “Q” quantity). Private users of the software also value the fact that other consumers are using the software. This “externality” is represented by Q. The marginal cost of producing the software is constant at $10.
24. What quantity of the software will the market produce?
a. 10
b. 15
c. 18
d. 24
25. What will be the surplus of private users of the software at the quantity in question 24?
a. 405
b. 810
c. 1920
d. 2200
26. What is the optimal quantity of the software (use decimals if required)?
a. 22.5
b. 32.5
c. 45.0
d. 66.0
27. What is the total surplus of software users at the optimal quantity in question 26?
a. 440.5
b. 506.25
c. 1012.5
d. 2025.0
Explanation / Answer
24)
P = 100 – 5Q
MC = 10
P = MC: Equilibrium condition.
100 – 5Q = 10
5Q = 90
Q = 90/5
= 18
Right answer is (C)
25)
CS = 0.5 (90)(18)
= .5*1620
= 810
Right answer is (B)
26)
P = MC
100 – 5Q -Q = 10
4Q = 90
Q =90/4
= 22.5
Right answer is (A)
27)
CS = 0.5 (90)(22.5)
= 1012.5
Right answer is ( C)
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