Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 50 − 2Q. If each firm's cost function is Ci(Qi) = 6Qi, then consumer surplus in this market is
O $225
O $484
O $516

When consumers pay less for a good or service than they are willing to, this is known as a consumer surplus. It measures the extra benefit that consumers get from paying less for something than they would have been willing to.

Consumer surplus is represented by a horizontal line drawn between the y-axis and demand curve and is defined as the region below the downward-sloping demand curve, or the amount a consumer is willing to spend for specific quantities of a good, and above the actual market price of the good.

This will be calculated thus:

P = 50 - 2Q

TC = 6Q

MC = 6

The profit maximization condition is

P = MC

50 - 2Q = 6

2Q = 44

Q = 44 / 2 = 22

Consumer surplus = 0.5[(50 - 6) × 22] = $484

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Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 50 − 2Q. If each firm's cost function is Ci(Qi) = 6Qi, then consumer surplus in this market is O $225 O $484 O $516

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What is consumer surplus?

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Consider two firms competing to sell a homogeneous product by setting price. The inverse demand curve is given by P = 50 − 2Q. If each firm's cost function is Ci(Qi) = 6Qi, then consumer surplus in this market is
O $225
O $484
O $516