Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 - Q. For this market demand curve, marginal revenue is MR = 20 - 2Q.
-Refer to Scenario 16-2. If the marginal cost of producing this good is 4, how much total consumer surplus would consumers receive in this market?
A)8
B)12
C)32
D)64

Question

Quizplus · Accepted Answer

To find total consumer surplus, we need to first find the quantity that maximizes consumer surplus, which is where marginal benefit (or marginal revenue) equals price. In this case, we can set MR = P and solve for Q: 
20 - 2Q = 20 - Q 
Q = 20

So, the equilibrium quantity is 20. We can then plug this quantity back into the demand function to find the equilibrium price: 
P = 20 - Q = 20 - 20 = 0

Note that the price is zero because there is a lot of consumer surplus available due to the downward sloping demand curve.

To find total consumer surplus, we need to find the area under the demand curve and above the price line, up to the equilibrium quantity of 20. This is the shaded triangle in the diagram below:

```
        |        /)
        |      /  )
        |    /    )
Price 0|  /      )Demand
        |/______Q_____ 
               20
```

The area of this triangle is 1/2 * base * height = 1/2 * 20 * 20 = 200/2 = 100.

So, total consumer surplus is $100.

Scenario 16-2 Suppose Market Demand for a Product Is Given by the by the Equation