Question 15 Marks
The demand and supply function of an article are $D(q)=1000-0.4 q^2$ and $S(q)=42 q$. Find the consumer's surplus and producer's surplus at equilibrium price.
Answer
View full question & answer→Given,
$D(q)=1000-0.4 q^2$ and $S(q)=42 q$
At equilibrium D(q) = S(q)
$1000-0.4 q^2=42 q$
or $0.4 q^2+42 q-1000=0$
or $4 q^2+420 q-10000=0$
or $q^2+105 q-2500=0$
or, (q + 125)(q - 20) = 0
q = - 125 or 20
The value of q cannot be negative, q = 20
When $q=Q_e=20$
$D(20)=1000-0.4(20)^2$
$=1000-0.4 \times 400$
$=1000-160=840=P_e$
Consumer's surplus is given by
$C S=\int_0^Q D(q) d q-Q_s \cdot P_e$
$\begin{array}{l}=\int_0^{20}\left(1000-0.4 q^2\right) d q-20 \times 840 \\ =1000[x]_0^{20}-0.4\left[\frac{q^3}{3}\right]_0^{20}-16800 \\ =1000(20-0)-0.4\left(\frac{20^3}{3}-0\right)-16800 \\ =1000 \times 20-0.4 \times \frac{8000}{3}-16800\end{array}$
= 20000 - 1066.666 - 16800
=20000-17866.666
= 2133.334
= 2133 units
Producer's surplus is given by
$\begin{aligned} P S & =Q_e \cdot P_e-\int_0^{Q_t} S(x) d x \\ & =20 \times 840-\int_0^{20} 42 q d q \\ & =16800-42\left[\frac{q^2}{2}\right]_0^{30} \\ & =16800-42\left(\frac{20^2}{2}-0\right) \\ & =16800-21 \times 400 \\ & =16800-8400 \\ & =8400 \text { units }\end{aligned}$
Hence, at equilibrium price, (i) the consumer's surplus is 2133 units and (ii) the producer's surplus is 8400 units.
$D(q)=1000-0.4 q^2$ and $S(q)=42 q$
At equilibrium D(q) = S(q)
$1000-0.4 q^2=42 q$
or $0.4 q^2+42 q-1000=0$
or $4 q^2+420 q-10000=0$
or $q^2+105 q-2500=0$
or, (q + 125)(q - 20) = 0
q = - 125 or 20
The value of q cannot be negative, q = 20
When $q=Q_e=20$
$D(20)=1000-0.4(20)^2$
$=1000-0.4 \times 400$
$=1000-160=840=P_e$
Consumer's surplus is given by
$C S=\int_0^Q D(q) d q-Q_s \cdot P_e$
$\begin{array}{l}=\int_0^{20}\left(1000-0.4 q^2\right) d q-20 \times 840 \\ =1000[x]_0^{20}-0.4\left[\frac{q^3}{3}\right]_0^{20}-16800 \\ =1000(20-0)-0.4\left(\frac{20^3}{3}-0\right)-16800 \\ =1000 \times 20-0.4 \times \frac{8000}{3}-16800\end{array}$
= 20000 - 1066.666 - 16800
=20000-17866.666
= 2133.334
= 2133 units
Producer's surplus is given by
$\begin{aligned} P S & =Q_e \cdot P_e-\int_0^{Q_t} S(x) d x \\ & =20 \times 840-\int_0^{20} 42 q d q \\ & =16800-42\left[\frac{q^2}{2}\right]_0^{30} \\ & =16800-42\left(\frac{20^2}{2}-0\right) \\ & =16800-21 \times 400 \\ & =16800-8400 \\ & =8400 \text { units }\end{aligned}$
Hence, at equilibrium price, (i) the consumer's surplus is 2133 units and (ii) the producer's surplus is 8400 units.
