1 A Graph inverse supply Assuming the market price of coal i

1. A). Graph inverse supply. Assuming the market price of coal is p = $150,

calculate and label:

(1) Quantity supplied

(2) MWTA by producers

(3) Marginal costs (MC) of production

(4) WTA by producers

(5) Total variable costs (TVC)

(6) Total Revenue, and

(7) Producer Surplus (PS)

B). Suppose that, to help conserve coal for the future, the government restricts coal

production in this mine to Q = 1000 (which is, presumably the point where MSC = price).

Also assume that production within this one mine does not affect the market price, which

remains at $150. What type of rents does this policy create? Graph and calculate the

various types of rents that make up producer’s surplus. Indicate the imputed marginal

user cost (MUC).

Solution

For exact answer, insert graph. Hints are as follows:

Quantity supplied is where P= $150 intersects supply curve.

At this quantity suppplied whatever is TVC, MC, TFC and TWA that is the answer ot oter parts.