Refer to the figure below to answer the questions that follow. 2. a. If MC=$10,
ID: 1201502 • Letter: R
Question
Refer to the figure below to answer the questions that follow.
2. a. If MC=$10, (A=15, G=12) what is the amount of consumer surplus under monopoly?
What is the amount of producer surplus?
b. If Ohio Edison is regulated to act as a perfectly competitive firm (instead of the monopoly level), what would be the amount of consumer surplus and producer surplus?
c. Based on your answers in parts a and b what is the net social gains of the antitrust regulation? (
MC = AC MR 500 600 800 1,200 Q Megawatts of electricity produced by Ohio EdisonExplanation / Answer
a) Under monopoly, MR = MC, so the quantity produced is 500. And the price charged is $12. So the consumer surplus is the area triangle AGB wihich is 1/2*500*(15-12) = $750. Producer surplus is monoploy's profit which is GBEF. This is equal to 500*(12-10) or $1000.
b) As a perfectly competitive firm P=MC=AC so the price charged will be $10 and quantity produced is 800 units. Consumer surplus is area of triangle AFC or 1/2(15 - 10)*800 = $2000. Producer surplus is zero since at this price, profit is zero.
c) Total surplus under monopoly is $1750 and total surplus under regulation is $2000. Hence, net social gains of the antitrust regulation are higher by $250.