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Question: Consider firms in the market for get-rich-quick schemes. For this problem, assume get-rich-quick schemes are indivisible (so there can only be 1, 2, 3, etc.). Now, the more schemes there are in the market the harder it is to come up with new schemes. Specifically, we assume that the first scheme costs $20 dollars to come up with and each additional scheme is twice as costly as the last one.

(1) Sketch the supply curve for get-rich-quick schemes. You can assume there are no fixed costs.

(2) Calculate the quantity of schemes supplied if p = $1000. What is producer surplus at this price?

(3) How much producer surplus is lost if the price drops to $750? How much of this is due to fewer schemes being produced and how much is due to lost revenue on the schemes that are still produced?

(4) How much more producer surplus is lost if the price drops further to $500? How much of this is due to fewer schemes being produced and how much is due to lost revenue on the schemes that are still produced?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92587815

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