32.5 q+1 Suppose that the inverse and direct supply functions are p = and p = 1 0.01q, respectively (where q is quantity and p is price). Show that the equilibrium price and quantity are 1.25 and 25, respectively. Using integral, determine the consumer, producer and social surplus.

32.5 q+1 Suppose that the inverse and direct supply functions are p = and p = 1 0.01q, respectively (where q is quantity and p is price). Show that the equilibrium price and quantity are 1.25 and 25, respectively. Using integral, determine the consumer, producer and social surplus.

Managerial Economics: A Problem Solving Approach

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Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

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Concept explainers

Total Surplus and Deadweight Loss

Economists generally define efficiency as when it is impossible to improve the situation of one party without imposing a cost on another. Conversely, if a situation gets inefficient, a party will benefit more than the other without imposing costs on others.

Question

Suppose that the inverse and direct supply functions are p
32.5
=
=
q+1
and p 10.01q, respectively (where q is quantity and p
is price). Show that the equilibrium price and quantity are 1.25 and 25, respectively. Using integral, determine the
consumer, producer and social surplus.

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Step 1: Define Producer surplus, Consumer surplus and Social surplus

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Step 2: Calculate the equilibrium price and quantity

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Step 3: Calculate the Producer Surplus, Consumer Surplus and Social Surplus

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