12. Suppose the inverse market demand (or MSB) and inverse market supply (or MSC) equations of the champagne market are: P = 90-10d and P = 20 +0.75Q®, where Q is the quantity (# of bottles per day) and P is the price (S/bottle)
(a) Draw the two equations on one diagram and show the equilibrium price and quantity of champagne on the diagram
(3 + 3 points)
(b) If the quantity sold of champagne is 20 bottles, what is the marginal social benefit of the 20th bottle to consumers? What
is the marginal social cost to producers?
(1 + 1 points)
(C) Suppose the champagne market is in equilibrium. Calculate the consumer surplus, producer surplus and economic
surplus
(2 + 2 + 2 points)
(d) Suppose now there is underproduction in the champagne market and output is reduced to 20 bottles. Calculate the
deadweight loss and the economic surplus in comparison to (C). Is the output of 20 bottles efficient? Why or why not?
(2 +2 +1 points)
(e) Suppose instead that there is overproduction in the champagne market and output is increased to 60 bottles. Recalculate
the deadweight loss and the economic surplus in comparison to (c). Is the output of 60 bottles efficient? Why or why not?
(2 + 2 + 1 points)