Question

If the price is set at $72 per unit, what production quota is needed to make sure there are no shortages or surpluses?

Considering the price support and quota, calculate:

the consumer surplus

the producer surplus

deadweight loss

Answer 1

Solution:

A production quota of 30 units equal to the new quantity demanded is needed to make sure there are no shortages or surpluses.

Consumer surplus = $\frac{1}{2} \times30 \times (90-72 = 270$

Producer surplus = $\frac{1}{2} \times30 \times (72-15) = 855$

Deadweight loss = $\frac{1}{2} \times(50-30) \times(72-45) = 270$