Principles of Microeconomics
Solutions
Principles of Microeconomics
A small town is served by many competing supermarkets, which have the same constant marginal cost.
a. Using a diagram of the market for groceries, show the consumer surplus, producer surplus, and total surplus.
b. Now suppose that the independent supermarkets combine into one chain. Using a new diagram, show the new consumer surplus, producer surplus, and total surplus. Relative to the competitive market, what is the transfer from consumers to producers? What is the deadweight loss?
Subpart (a):
Figure 1 shows the demand curve of groceries with constant marginal cost.
Subpart (b):
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