2. [Resale Price Maintenance and Total Surplus] The first two parts of this question refer to the main source for Lecture 29: - Blair, R. D. 8: Whitman, I. (2018). Resale price maintenance: A managerial perspective. Managerial and decision economics, 39(7), 751-760. Retrieved from https://doi org.ezproxv.librag.uvic.ca/lO.1002/mde.2920 Note that this source does most of the math for you. The paper calculates equilibrium prices, quantities, etc. for you. Your role is to put that information together to calculate total surplus. a. In lectures 29 and 30, we looked at the effect on consumer surplus and producer surplus of higher quality service made possible by resale price maintenance. What we did not do was calculate the change in welfare due from going from low quality service to high quality service, for a particular numerical example. That's what you're going to do here. Consider the following situation: (Inverse) Retail demand given low quality service is [)1 = P = 80 - 0/2 (Inverse) Retail demand given high quality service is D; = P = 120 - 0J2 The producer's marginal cost of production is MC = 30 The marginal cost of low quality retail service is mci = 10 The marginal cost of high quality retail service is mc2= 20 The producer charges retailers a wholesaler price wi (when there is low quality service) and w; (when there is high quality service). . The producer faces derived (inverse) demand of d1 = D1 - mc1 in the low quality service case, and d2 = D; - mcz in the high quality service case. The producer sets the wholesale price by setting its marginal revenue = MC. 3 Retailers are competitive price-takers. Their economic profit and surplus are zero. Calculate the change in total surplus in going from low quality retail service to high quality retail service. This equal to (Total Surplus given high quality service) - (Total surplus given low quality service). Remember that Total Surplus = Consumer Surplus + Producer Surplus