1. Return to the cellular phone industry when it was organized as a perfectly competitive industry. We will use the information in Practice Problem 2.1 to work out consumer surplus and producer surplus in a competitive equilibrium

1. Show that when QC=500 units and PC=$30 per unit then consumer surplus is equal to $22,500 and producer surplus is equal to $5,000. This results in a total surplus equal to $27,500.
2. Show that when an output of 275 units is produced in this industry the sum of consumer and producer surplus falls to $21,931.25.

For reference, problem 2.1 will be mentioned below.

 

   

Assume that the manufacturing of cellular phones is a perfectly competitive industry. The market The inverse 6000-50P 9 demand for cellular phones is described by a linear demand function QD demand can easily be worked out, therefore, to be P = 120-Q. Assume that there are fifty manufacturers of cellular phones and that each manufacturer has the same production costs. These are described by long-run total and marginal cost function of TC(q) = 100+q + 10q, and MC(q) = 2q + 10. P-10 2 a. Show that a firm in this industry maximizes profit by producing q - b. Derive the industry supply curve and show that it is QS = 25P-1 - 250. c. Find the market price and aggregate quantity traded in equilibrium. d. How much output does each firm produce? Show that each firm earns zero profit in equilibrium.