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Given a demand function, D(q)=-4q+600, and a supply function S(q)=2q, what price control will maximize Consumer Surplus?
Given a demand function, D(q)=-4q+600, and a supply function S(q)=2q, what price control will maximize Consumer Surplus?
Expert Solution
The consumer surplus is maximized when market demand equals market supply, i.e.
-4q + 600 = 2q, or
q = 100
P = -4*100+ 600 = 200
At this price and quantity, the consumer surplus is 1/2 * 100 * (600-200) =20,000
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