Question: With price measured in £ per thousand units, and X being measured as thousands of units per week, a perfectly competitive industry faces a demand curve given by
p = 20 - 2X
and produces output at constant supply price of £1 per thousand units
(a) Find, on the assumption that the area under the demand curve measures the total benefit accruing to consumers of X, the consumers' surplus accruing to purchases of X.
(b) Now suppose that a single firm takes over the whole industry, and that £1 per thousand units now represents its long-run marginal and average cost of producing X. Find:
(i) its output;
(ii) the price of that output;
(iii) the firm's profits; and
(iv) the consumer's surplus accruing to purchasers of X.
(c) Suppose a sales tax of 10 pence per thousand units is levied on X. Recompute your answers to parts (a) and (b).
(d) Suppose a maximum price of £1.20 per thousand units is imposed by government decree. Recompute your answers to part (b).