Suppose the market demand function (expressed in dollars) for a normal product is P = 480 – 4q and the marginal cost of producing it is MC = 2q, where P is the price of the product and q is the quantity demanded or supplied. Here are the specific questions: (show your work).
How much would be supplied by a competitive market?
What would be the magnitude of the net benefits (in dollars)? Draw your answer on a graph as well.
Suppose the government restricts output to q = 20. How much is net benefit reduced?