Question

Suppose the supply function in a market is and the current market price is p* = 4. What is the producer surplus?
b) Demand function is given by
Find the interval of prices for which demand is positive.
Express total revenue TR = PQ as a function of price. When is total revenue maximized?
For which price is the own-price elasticity equal to -1?

Answer 1

The consumer's surplus (or gain) is the difference in the volume of demand between the maximum price that he is willing to give for the product; Pmax, and the one he really pays. Pe.

Producer's surplus (gain) is the difference in supply volumes between the market price and that minimum price; Pmin, for which manufacturers are willing to sell their goods.