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(ECON110)2008_s_quiz_ECON110_739.pdf
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ECON 110
Problem Set 3 Solutions

Chapter 5: Problem 2
a. The minimum supply-price equals the lowest price at which a producer is willing to produce the given quantity.


Anns minimum supply-price for 10 rides is $15.00; Arthurs minimum supply-price is $17.50; and, Abbys minimum supply-price is $20.00.

b. Ann has the largest producer surplus. When the price is $17.50, Ann produces the largest quantity. And, at any quantity for which Ann produces rides, her supply schedule shows that her minimum supply-price (which is equal to her marginal cost) is lower than Arthurs and Abbys minimum supply-price.



c. The marginal social cost of producing 45 rides a day is the minimum supply-price from the market supply schedule. From the table, the minimum supply-price is $20.00 because at this is the lowest price for which 45 rides will be supplied.



d. The market supply schedule equals the sum of the quantity supplied by Ann, Arthur, and Abby at each price. So, when the price is $10.00 per ride, the market quantity supplied is 0 rides; when the price is $12.50 per ride, the market quantity supplied is 5 rides; when the price is $15.00 per ride, the marker quantity supplied is 15 rides; when the price is $17.50 per ride, the market quantity supplied is 30 rides; and when the price is $20.00 per ride, the market quantity supplied is 45 rides.



Chapter 5: Question 4
a. The maximum price that consumers will pay for the 200th sandwich is $2.


The demand schedule shows the maximum price that consumers will pay for each sandwich. The maximum price that consumers will pay for the 200th sandwich is $2.

b. The minimum price that producers will accept for the 200th sandwich is $4.


The supply schedule shows the minimum price that producers will accept for each sandwich. The minimum price for which produces will produce the 200th sandwich is $4.

c. 200 sandwiches a day are more than the efficient quantity because the marginal social benefit (the maximum price consumers will pay) is less than the marginal social cost (the minimum price suppliers will accept).



d. Consumer surplus is $225.


150 sandwiches is the efficient quantity. The equilibrium price is $3. The consumer surplus is the area of the triangle under the demand curve above the price. The area of the consumer surplus triangle is ($6 . $3)/2 multiplied by 150, which is $225.

e. Producer surplus is $225.


The producer surplus is the area of the triangle above the supply curve below the price. The price is $3 and the quantity is 150. The area of the triangle is ($3 C $0)/2 multiplied by 150, which is $225.

f. The deadweight loss is $50.


Deadweight loss is the sum of the consumer surplus and producer surplus that is lost because the quantity produced is not the efficient quantity. The deadweight loss equals the quantity (200 C 150) multiplied by ($4 C 2)/2, which is $50.

g. If the dem