Answer to Question #63690 in Microeconomics for Aisha

Question

A monopoly produces a life-saving medicine at a constant cost of $10 per dose. The demand for this medicine is perfectly inelastic so long as price is less than the $100 (per day) income of the 100 patients who need to take this drug once a day.
A. Show the equilibrium price and quantity and the consumer and producer surplus in a graph. (8 pts)
B. The government imposes a price ceiling of $30. Show the new equilibrium. What is the change in consumer and producer surplus? What is the deadweight loss (if any) from this price control? (9 pts)

Answer 1

A) I think, in this case equilibrium price is $10 and quantity is 10, because in this price, the level of demand and level of supply is the same, that`s why consumer surplus is 450 and producer surplus is 50.
B) After that, government imposes a price ceiling of $30, the new equilibrium become (10;$30), then consumer surplus is 350 and producer surplus is 150.