(a) Find the consumer's surplus for the demand function , where the prevailing market price . OR (b) Solve the following initial value differential equation : , given when .
Answer: The consumer's surplus is .
Step-by-step solution
Step 1: Find the quantity demanded at market price
To find the quantity demanded () at the prevailing market price (), we set the demand function equal to the market price and solve for . This gives us a quadratic equation.
Step 2: Solve the quadratic equation for x
Rearranging the equation gives . Factoring this quadratic equation yields . Since quantity cannot be negative, we take the positive value, .
Step 3: Apply the consumer's surplus formula
The consumer's surplus (CS) is calculated by integrating the difference between the demand function and the market price from to the quantity demanded .
Step 4: Substitute values and integrate
Substitute the demand function and the market price into the formula. Simplify the integrand to and then perform the integration.
Step 5: Evaluate the definite integral
Evaluate the definite integral by plugging in the upper limit and the lower limit . Subtract the value at the lower limit from the value at the upper limit to find the consumer's surplus.
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