ADVANCED ANALYSIS Given the following diagrams: Q1-20 bags. Q2-15 $110 per bag.
ID: 1223324 • Letter: A
Question
ADVANCED ANALYSIS Given the following diagrams: Q1-20 bags. Q2-15 $110 per bag. The price at point c is $10 per bag. The bags. Q-27 bags. The market equilibrium price is $70 per bag. The price at port a is $110 per bag The price at point cis $10 per bag. The price at point dis s80 per bag. The price at point o is $5 per bag. The price at point fis $91 per bag. The price at point g is $56 per bag. Apply the formula for the area of a triangle (Area xBase x Height) to answer the for the area of a triangle (Area ½ x Base x Height) to answer the following questions. Efficiency loss from overproduction Efficiency loss from underproduction 2a, Quantity (bags) Quantity (bags)Explanation / Answer
a.
Consumer surplus at Q1 = 0.5 * Q1 * (Price at point C - price at equilibrium)
Consumer surplus at Q1 = 0.5 * 20 * ($110 - $70) = $400
Producer surplus at Q1 = 0.5 * 20 * (Price at equilibrium - price at point C)
Producer surplus at Q1 = 0.5 * 20 * ($70 - $10) = $600
Total surplus at the output level Q1 = ($400 + $600) = $1000.
b.
At Q2 level of output,
Consumer surplus = 0.5 * Q2 * (Price at point a - Price at point d)
Consumer surplus = 0.5 * 15 * ($110 - $80) = $225
Producer surplus = 0.5 * Q2 * (Price at point e - Price at point c)
Producer surplus = 0.5 * 15 * ($55 - $10) = $337.50
Total surplus = $225 + $337.50 = $562.50.
At Q2 level of output
Deadweight loss = 0.5 * (Q1 - Q2) * (Price at point d - Price at point e)
Deadweight loss = 0.5 * (20 - 15) * ($80 - $55) = $62.50.
c.
At output level Q3,
Deadweight loss = 0.5 * (Q3 - Q1) * (Price at f - Price at g)
Deadweight loss = 0.5 * (27 - 20) * ($91 - $56) = $122.50
Total Surplus = Consumer surplus + Producer surplus
Total surplus = 0.5 * Q3 * (Price at point a - Price at point g) + 0.5 * Q3 * (Price at point f - Price at point c)
Total surplus = 0.5 * 27 * ($110 - $56) + 0.5 * 27 * ($91 - $10) = $1822.5.
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