Question
Demand in some market is represented by Q = 308 -2P. All firms face the same marginal cost Of producing In this market, which Is
Demand in some market is represented by Q = 308 -2P. All firms face the same marginal cost Of producing In this market, which Is represented by: MC = 4 + Q/4
a) If this market Is perfectly competitive, what Is the competitive equilibrium price and quantity?
b) Now assume there is a single firm which produces and sells this product. What is the optimal price and quantity for this firm to sell? If you wish, feel free to use the following facts: given the equations above, revenue is: 154Q - 1/2Q^2, and therefore the equation for marginal revenue is: MR= 154 - Q.
c) What is consumer surplus in part (a)?
d) Is total surplus higher or lower in (a) or in (b)? How can you know this without doing any calculations?
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