Questions 5, 6, and 7 consider the perfectly competitive market for Honey.Honey is produced by beekeepers, each of which have traditional U-shaped average cost curves.There are many firms in the honey industry, each producing a homogeneous product: honey.Market demand for honey can be characterized as a downward sloping linear function.

Question 5:

For this question, ignore any externalities that might be associated with the production of honey.

• Graphically indicate the demand (D₀) and Supply (S₀) and the equilibrium in the market for honey.Show the equilibrium price and quantity, Q₀and P₀.Indicate on your graph the areas of consumer surplus and producer surplus.
• What is the output level the Benevolent Dictator would like to see in this market? Why?