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Consider the diagram below, showing government purchases from a monopoly market. DIAGRAM NOT DRAWN TO SCALE. P Note: MR is Marginal Revenue 76 Marginal Cost

Consider the diagram below, showing government purchases from a monopoly market. DIAGRAM NOT DRAWN TO SCALE.

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P Note: MR is Marginal Revenue 76 Marginal Cost Dollars per unit of X Dz 70 B F1 Augmented 10 Demand C F2 Private MR MR Demand 24 30 33 Ox Thousands of units of x The equations for the private demand function and the marginal cost function are: Demand: P = 100 - QM Marginal Cost: MC = 10 + QM A. List the areas from the graph which correspond to the following values [0.5 marks each]: i. Foregone private consumption (due to crowding out effect). ii. Increased resource cost (for new production) iii. Gross cost of government purchases. B. Calculate the quantity of units of X purchased by the government [0.5 marks]. C. Calculate each of the following monetary values [0.5 marks each - No marks will be awarded without accompanying calculations]: i. Change in consumer surplus ii. Change in producer surplus iii. Change in government outlays iv. Gross cost to society caused by the government purchases from the monopoly market

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