MATH 101C ASSIGNMENT 1

Recall from class the definitions of consumer surplus, producer surplus, and total surplus:
For a particular good, let D(q) be its demand curve and S(q) be its supply curve, and let (qe , pe ) be
their point of intersection.
Z qe
• Consumer surplus is given by D(q) dq − pe qe .
0
Z qe
• Producer surplus is given by pe qe − S(q) dq .
0

• Total surplus given by the sum of producer surplus and consumer surplus.

1. In this question, we’ll compute a definite integral from its definition.

Do all the computations by hand until the end of 1c. Your answer at that point should be simplified to
calculator-ready form (i.e. it can include additions, subtractions, multiplications, and divisions, but not
integrals). Then, and only then, use a caculator to get a final number.
Z 24
(a) Write (40 − x)2 dx as the limit of a right Riemann sum.
0
(b) Re-write the sum from 1a in the form
N N
!
X X
2
lim A+B i+C i
N →∞
i=1 i=1

where A, B, and C depend only on N .

N N
X N (N + 1) X N (N + 1)(2N + 1)
(c) Using the formulas i= and i2 = , evaluate the limit from 1b.
i=1
2 i=1
6

2. The price (per litre) at which consumers will want to purchase a total quantity of q litres of an elixir is

(40 − q)2
D(q) = , 0 ≤ q ≤ 40 .
16
The price (per litre) at which suppliers will want to sell a total quantity of q litres of the same elixir is

q2
S(q) = , 0 ≤ q ≤ 40 .
36
(a) How much of the elixir would be sold if the market price were $4 per litre? What about $25 per
litre? (Assume these prices are fixed, say by the government.) Include units in your answer.
(b) Let (qe , pe ) be the point of intersection of D(q) and S(q).
Use your answer from 1c to find the consumer surplus when qe units are sold at a price of $pe each.
Include units in your answer (which should be a number).
(c) Why don’t we use any area to the right of the equilibrium quantity when calculating surplus?
3. Suppose N is a positive constant giving the quantity of goods sold. D(q) and S(q) are demand and supply
functions, but not necessarily the same demand and supply functions as in the previous question.
(a) Give an interpretation, in terms of our economic model, of
Z N
D(q) d(q) .
0

(b) Given an interpretation, in terms of our model, of

Z N
S(q) d(q) .
0

(c) According to the model from class, we expect the market price to be the equilibrium price, pe , and
the quantity sold to be the equilibrium quantity, qe . This was based on a model where the price was
the same for all consumers.
Suppose instead that suppliers implement dynamic pricing, where they may charge different amounts
for the same good. Let A(q) be the price of the q th most expensive unit of the good. That is, A(1)
is the price of the most-expensive single unit for sale, A(2) is the price of the second-most-expensive
single unit for sale, and A(3) is the price of the third-most-expensive single unit for sale, etc.
Assuming still that N units are sold, give an interpretation in terms of our model of
Z N
A(q) d(q) .
0

(d) As in class, we think of a consumer’s surplus as the amount of value an item has for that consumer
minus the amount they paid, and we think of a producer’s surplus as the amount they were paid
minus what the item was worth to that producer.
Give a sensible definition of consumer surplus, producer surplus, and total surplus in the dynamic-
pricing scenario, using integrals. Explain why those definitions are consistent with the given descrip-
tion of surplus.
(e) The functions D(q), S(q), and A(q) are shown below.
p
p = S(q)

p = A(q)
q
q1 q2 q3 p = D(q)
What quantity sold maximizes consumer surplus, and what quantity sold maximizes producer sur-
plus? (Use your definitions from 3d, and remember to fully justify your answers.)