Reply Wed 14 Nov, 2012 03:45 am
He everybody,

I am not sure if this is the correct place to ask this, but I'll try anyway. I have troubles making my home assignments for economics and I have a few questions. To make it more comprehensible, here is the first question:

1. Consider the case of vertical (i.e. perfectly inelastic) demand. Carefully compute consumer, producer, and total surpluses in case of perfectly competitive and monopolistic production. What is the size of the deadweight loss due to the monopoly?

I made the diagram with the vertical demand curve and the normal rising supply curve. So my answer is that producer surplus is the area beneath the clearing price and above the supply curve. Next I answered that the consumer surplus is inifite, thus also the total surplus. Is this correct?

Then, the main questions I have is the case with the monopoly and the inelastic demand. I have no clue what to do? please help.

The second question is as follows:
2. Replicate the example we discussed in class where compensated and equivalent variations were computed when the price of medical services went up for the case of the Rawlsian preferences. Draw a graph showing how you compute CV and EV in this case. Comment on the differences you obtain with “normal” smooth bowed-out preferences.

so the example was with medical services on the x-axis. For the rest, I can;t remember to draw the graph for this. pleas help!!
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