MANAGERIAL ECONOMICS (ECO404) ASSIGNMENTNO. 02 Solution July 2013

MANAGERIAL ECONOMICS (ECO404)

ASSIGNMENT NO.02

Requirement as per given assignment:

Being a student of Managerial Economics, carefully analyze above graphs and calculate

the following for WAPDA:

A. Short Run Profit

B. Long Run Profit

C. Consumer Deadweight Loss

D. Producer Deadweight Loss

E. Total Deadweight Loss

F. Amount of Consumer Surplus that is transferred to Producer Surplus

Solution:

A. Short Run Profit

Total Revenue = 500 x 7 = 3500

Total Cost = 500 x 5 = 2500

Profit = 3500 – 2500 = 1000

B. Long Run Profit

Total Revenue = 700 x 4 = 2800

Total Cost = 700 x 2 = 1400

Profit = 2800 – 1400 = 1400

C. Consumer Deadweight Loss

Change in Price = 65 – 45 = 20

Change in Quantity = 100 – 70 = 30

Consumer Deadweight Loss = 0.5 x 20 x 30 = 300

D. Producer Deadweight Loss

Change in Price = 45 – 35 = 10

Change in Quantity = 100 – 70 = 30

Consumer Deadweight Loss = 0.5 x 10 x 30 = 150

E. Total Deadweight Loss

Change in Price = 65 – 35 = 30

Change in Quantity = 100 – 70 = 30

Consumer Deadweight Loss = 0.5 x 30 x 30 = 450

F. Amount of Consumer Surplus that is transferred to Producer Surplus

                                                = (65 x 70) – (45 x 70)

                                                = 4550 – 3150

                                                = 1400