Inverse demand curve-consumer surplus and producer surplus

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Suppose that the inverse demand curve is: p(q) = a − bq, and the cost function is: c(q) = cq. (a) Draw a graph showing the demand curve and marginal cost curve, with dollars on the y-axis and quantity on the x-axis. (b) Show the quantity on that graph that maximizes total surplus. Denote that as q¯. Illustrate the price corresponding to that quantity, and denote that price as p¯. (c) How much consumer surplus is generated when the price is p¯? How much producer surplus is generated at p¯? Show on your graph and also compute the algebraic answer. (d) If the monopolist can only set a linear price (that is, a xed price per unit sold), what price will it set? On a second graph, plot the demand curve, marginal cost curve, and the solution to the monopolist's problem. How much consumer surplus and producer surplus is generated at that price and quantity? Illustrate the deadweight loss in this case. (e) If the monopolist can charge a two-part tari, where it charges a xed fee to consume anything and a variable fee per unit of quantity sold, what fee and marginal price will it choose? (f) What is the consumer surplus and producer surplus in this case? Prove that producer surplus has increased. What has happened to deadweight loss?

Reference no: EM131002957

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