ADVANCED ANALYSIS Assume the following values for Figures 5.4a and Figures 5.4b.

Question

ADVANCED ANALYSIS Assume the following values for Figures 5.4a and Figures 5.4b. Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market equilibrium price is $45 per bag. The price at a is $85 per bag. The price at c is $5 per bag. The price at f is $59 per bag. The price at g is $31 per bag. Apply the formula for the area of a triangle (Area = ½ × Base × Height) to answer the following questions. LO2

a. What is the dollar value of the total surplus (producer surplus plus consumer surplus) when the allocatively efficient output level is being produced? How large is the dollar value of the consumer surplus at that output level?

b. What is the dollar value of the deadweight loss when output level Q2 is being produced? What is the total surplus when output level Q2 is being produced?

c. What is the dollar value of the deadweight loss when output level Q3 is produced? What is the dollar value of the total surplus when output level Q3 is produced?
(Campbell, McConnell. Economics, 19th Edition. McGraw-Hill Learning Solutions, 01/2011. p. 113).
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Explanation / Answer

DWL=1/2(20-15)(59-31)=70 CS =1/2 (20-0) (85-45) =400 PS=1/2 (20-0) (45-5) =400 TS=PS+CS=800 Hope this helps

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