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Calculation of
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Explanation of Solution
Case A:
In case “A”, profit-maximizing quantity (PMQ) can be calculated as follows:
The profit-maximizing output is 20 units.
Substitute the profit-maximizing output in demand equation to calculate the profit-maximizing price (PMP).
The profit-maximizing price is $30.
Socially-optimal quantity (SOQ) can be calculated as follows:
The socially-optimal quantity is 40.
Substitute the sociality-optimal output in demand equation to calculate the socially-optimal price (SOP).
The socially-optimal price is $10.
The deadweight loss is calculated as follows:
The deadweight loss is $200.
Case B:
In case “B”, the profit-maximizing quantity (PMQ) can be calculated as follows:
The profit-maximizing output is 22.5 units.
Substitute the profit-maximizing output in demand equation to calculate the profit-maximizing price (PMP).
The profit-maximizing price is $55.
The socially-optimal quantity (SOQ) can be calculated as follows:
The socially-optimal quantity is 45.
Substitute the sociality-optimal output in demand equation to calculate the socially optimal price (SOP).
The socially-optimal price is $10.
The deadweight loss is calculated as follows:
The deadweight loss is 506.25.
Case C:
In case “C”, the profit-maximizing quantity (PMQ) can be calculated as follows:
The profit-maximizing output is 20 units.
Substitute the profit-maximizing output in demand equation to calculate the profit-maximizing price (PMP).
The profit-maximizing price is $60.
The socially-optimal quantity (SOQ) can be calculated as follows:
The socially-optimal quantity is 40.
Substitute the socially-optimal output in demand equation to calculate the socially optimal price (SOP).
The socially-optimal price is $20.
The deadweight loss is calculated as follows:
The deadweight loss is $400.
Concept introduction:
Deadweight loss: The fall in total surplus that results from a market distortion is termed as deadweight loss.
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Chapter 13 Solutions
Modern Principles of Economics
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
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