MC equation.) In turn, the total benefit associated with consuming Q
units of output is given by the equation B 160Q Q^2. (Total benefit
represents the trapezoidal area under the demand curve. It is also the
sum of consumer surplus and revenue. Note that taking the derivative of
the benefit equation produces the original industry demand curve MB
160 2Q.)
a. Create a spreadsheet similar to the given example. Only the quantity
cell (C5) contains a numerical value. All other cells are linked by
formulas to the quantity cell.
b. Find the intersection of competitive supply and demand by equating
the demand and supply equations or by varying quantity in the
spreadsheet until MB equals MC.
c. Alternatively, find the optimal level of industry output by maximizing
net benefits (cell F9) or, equivalently, the sum of consumer and
producer gains (cell F10). Confirm that the perfectly competitive
equilibrium of part (b) is efficient.316 Chapter 7 Perfect CompetitionAB CD E FG
1
2 EFFICIENCY OF
3 PERFECT COMPETITION
4
5 Quantity 32 Price 96
6
7 Benefit 4,096 Con Surplus 1,024
8 P MB 96
9 B C 1,504
10 Revenue 3,072 CS Profit 1,504
11 MR 32
12 Profit 480
13 Cost 2,592
14 MC 72
15Suggested References
Brock, J. R. (Ed.). The Structure of American Industry.New York: Prentice-Hall, 2008, especially
Chapter 1.
This volume devotes separate chapters to describing the market structures of the major sectors in the American
economy—from agriculture to banking, from cigarettes to beer, from automobiles to computers.c07PerfectCompetition.qxd 9/29/11 1:30 PM Page 316