The demand curve and marginal cost curve

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Reference no: EM131003086

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.

Reference no: EM131003086

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