Quiz 14 NAME Consumer’s surplus 14.1 In Problem 14

Quiz 14 NAME Consumer’s surplus 14.1 In Problem 14

 

 

answer:

The answer of this question is

A. $312.50.

This can be done in the following way.

A firm can charge a maximum price in which demand is 0.

Here, if price is $100, the quantity demanded would be 0.

This is calculated from the demand equation :

D(p) = 100 – p

Now, if we put p = 100, the

D(p) = 100 – 100

D(p) = 0

.So, the maximum price is $100.

Now, at the market price of $75, there will be

D(p) = 100 – 75

D(p) = 25.

So, there will be demand of 25 units.

So, we can calculate the consumer surplus(CS) as follows

CS = 0.50 * equilibrium quantity * (Maximum price – Equilibrium or market price)

CS = 0.50 * 25 * ($100 – $75)

CS = $312.50.

So, the net consumer surplus is $312.50.

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