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In market A, a firm with market power faces an inverse demand curve of P = 10 - Q and a marginal...

Question:

In market A, a firm with market power faces an inverse demand curve of P = 10 - Q and a marginal cost that is constant at $2. In market B, a firm with market power faces an inverse demand curve of P = 8 - 0.75Q and a marginal cost of $2. Producer surplus in market A is {eq}\_\_\_\_\_\_\_\_\_ {/eq} than in market B.

A) $8 higher

B) $4 higher

C) $2 lower

D) $1 lower

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Producer Surplus

Producer surplus is the amount of surplus benefit earned by the producer. The producers earn surplus above their marginal cost, but below the market price, depending upon the quantity sold. The producer surplus is higher as compared to other markets in monopoly.

Answer and Explanation: 1

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A) $8 higher

Equilibrium in market A:

{eq}\begin{align*} P &= 10 - Q\\ TR &= 10Q - {Q^2}\\ MR &= 10 - 2Q\\ MR &= MC\\ 10 - 2Q &= 2\\ Q &=...

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Producer Surplus: Definition, Formula & Example

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Chapter 3 / Lesson 61
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Learn the producer surplus definition and understand how to calculate it with the producer surplus formula. See how a profit is made with a producer surplus example.


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