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ECO404 - Managerial Economics Assignment No. 02 Solution and Discussion Spring 2013 Due Date 01-07-2013

SEMESTER SPRING 2013
MANAGERIAL ECONOMICS (ECO404)
ASSIGNMENTNO. 02

DUE DATE: 1ST JULY, 2013 MARKS: 20

Objectives of the study:

The objectives of this assignment are to familiarize students with the:

 Concepts of short run and long run equilibrium of Monopoly market structure
 Calculations of short run and long run profit with the help of graph
 Deadweight loss of monopoly
 Calculations of consumer and producer deadweight loss of monopoly

The Case:

Monopoly is a market structure in which a single seller is dominating and selling a
unique product for which no close substitutes are available in the market. One major example from Pakistan may include pubalic monopolies set up by government to provide essential public goods and services such as water and electricity. Electricity in Pakistan is generated, transmitted, distributed and retail supplied by two vertically integrated public sector utilities: Water and Power Development Authority (WAPDA) for all of Pakistan except Karachi, and the Karachi Electric Supply Corporation (KESC) for the city of Karachi and its surrounding areas. The Pakistan Water and Power Development Authority (WAPDA) was established through an act of parliament in February 1958 for integrated and rapid development and maintenance of water and power resources of the country. This includes controlling soil salinity and water logging to rehabilitate the affected land in order to strengthen the predominantly agricultural economy of the country. Recently, a study was conducted on WAPDA by an economist who revealed the following hypothetical graphical results of short run equilibrium, long run equilibrium
and deadweight loss of WAPDA. He further concluded in his final remarks that
WAPDA, being a monopoly market, creates a loss in social welfare due to the decline in mutually beneficial trade activity and due to the wealth transfer problem, consumer surplus is transferred to producer surplus.

Requirement:

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
(Marking Scheme: 3+3+4+4+3+3)
Outcomes of the study:
After solving this assignment, student will be able to:
 Know about short run and long run equilibrium of Monopoly market structure
 Calculate short run and long run profit with the help of graph
 Know about Deadweight loss of monopoly
 Calculate consumer and producer deadweight loss of monopoly

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Replies to This Discussion

Abi in process hai bhai just wait 

i have done almost all just short run profit and long run left. what about u? us ma ma thoda sa confuse hu so thats y.

Solve the PART C , D , E with the help of this

How to Calculate Deadweight Loss in Microeconomics


The foundation of economics is the demand-supply curve. The demand-supply curve basically illustrates the fact that, in a competitive market, the price for a product or service settles at a point where the quantity demanded by consumers is equal to the quantity supplied by producers. This results in an equilibrium of price and quantity. Dead-weight loss comes into play when this equilibrium is interrupted by an an abnormal economic force, such as tax subsidies or one company monopolizing a market.
1
Determine the equilibrium price and quantity for the product in question. As an example, assume the equilibrium quantity is 5,000 widgets at $30 each.

2
Determine the new quantity and new price as a result of an abnormal market interruption. As an example, keeping supply the same, assume price increased from $30 to $40 and the quantity demanded also increased from 5,000 to 7,500 due to some abnormal economic condition. Normally, if price increased, the quantity demanded would decrease, since people would not be able to afford the new price.

3
Calculate the deadweight loss created by this abnormal economic condition using this formula: Deadweight loss= (0.5)(Change in Price)(Change in Quantity Demanded). Using the above examples:

Change in Price = $40-$30 = $10

Change in Quantify demanded = 7500-5000 = 2500

Deadweight Loss = (0.5)($10 x 2500) = $12,500.

give the hint for a n b plz

plzz give the whole assignment solution.... 

 Gud ap share to karain main short run pay working kar raha hun,

but short run main tamam variable factors hotay hain and neechay wala formula lagna hai,

π = TR – TC

 

            Q*R =     7*500=3500

            Q*C=      5*500=2500

TR-TC=3500-2500=1000

plz make sure kar lain ap submit karnay say pehlay aur agr ho skay to remaining points share karain so that i can varify my solution 

thanks

ok i will check this...to calculate dead weight loss for consumers i used this formula.

= 1 /2 (Q1-Q2) * (P2-P1) = result value is 300

for producers 

=  1 /2 (Q1-Q2) * (P1- C) C means at point c in graph.= 150

total deadweight loss is:

= Consumer loss + Producer loss =450

consumer surplus that is transferred to producer surplus

: Q2 * (P2-P1)

= 1400/month.

Yes its correct bcoz if u see graph here in short difference in costs revenue is 7-5=2 and with respect to quantity 2x 500 = 1000 and for long run the sam would be applied 4-2 = 2 and 2 x 700 = 1400 and as per formula 3500-2500 = 1000

for long run 2800-1400= 1400

Complete  Answers.

A= $ 1000

B= $ 1400

C= $ 300 per month

D= $ 150 per month

E= $ 450 per month

F= $ 1400 per month

Shahid,  Please share complete solution 

I am so sorry brother, I was away and unable to see mail.

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