No Practice Problems in this chapter.

2.1

- Profit Maximization implies MC = 2
*q*+ 10 =*P*. Hence,*q*= (*P*− 10)/2. - With 50 firms, horizontal summation of the individual marginal cost curves yields:
*Q*= 50 (^{S}*P*− 10)/2 = 25*P*− 250. - Equilibrium:
*P*= $30 and*Q*= 500. *q*= (*P*− 10)/2 = 10. Revenue =*Pq*= $300. Total cost = 100 +*q*^{2}+ 10*q*= $300. Profit = 0.

2.2

- Inverse demand curve is:
*P*= (6,000 − 9*Q*)/50. Hence, MR = 120 − (18*Q/*50) = 120 − (9*Q/*25). - MC = 10 +
*Q/*25. Equate with MR to obtain:*Q*= 275. At this output,*P*= $70.50. - Total revenue = $19,387.50. Each plant produces 5.5 units and incurs a total cost of $185.25. Each plant earns a revenue of $387.75. Profit at each plant is $202.50.

2.3

- Consumer surplus is the area of the triangle above the equilibrium price but below the demand curve = (1/2)($120 − $30)500 = $22,500. Producer surplus is the area of the triangle below the equilibrium price but above the supply curve = (1/2)($30 − $10)500 = $5,000. Total Surplus = $22,500 + $5,000 = $27,500. Note: Surplus is a marginal concept. Producer fixed cost is not considered.
- Total surplus falls by area of deadweight triangle. Height of triangle is given by reduction in output which is 500 − 275 = 225. Marginal cost at
*Q*= 275 is $21. Base of triangle is given by price less marginal = $70.50 − $21 = $59.50. So deadweight triangle has area equal to: = (1/2)($49.50)225 or $5,568.75. The new total surplus is the competitive surplus less the ...

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