1. Surplus & Marginal Revenue
April 3, 2013

2. Announcements
• Comments on site: Bravo!
– econ2ucsd.wordpress.com
• Sabrina Asked: Should we register clickers?
– Yes. Here.
• William Said: I got my 4th edition online &
delivered by Friday for $29.
– Great! For those who still want 5th edition, I will
reference both in homeworks.
– The questions for this homework are identical in both
versions, just different numbers.

3. Agenda for Today
• Learning goal 1: Be able to measure consumer
and producer surplus in various situations and
verbalize what it is.
– How: quiz-lecture-quiz feedback.
• Learning goal 2: Draw the marginal revenue
curve for any firm given demand.
– How: will focus on definition first, and then
practice with different equations for demand.

4. Clicker Practice: Frequency BB
A. I have an i>clicker
B. I have an i>clicker +
C. I have an i>clicker 2
D. I don’t have a clicker, but am able to answer
because I am telekinetic.
Last check: 147 registered in this class.

5. PD=R-aQ. PS=bQ. a,b,R>0.
elasticity(S)>elasticity(D).
A. CS > PS
B. CS < PS
C. CS = PS
D. Can’t tell without more information
E. I don’t remember what elasticity is so my
best answer is a guess.

6. Correct answer: A
1 Recall the definition of elasticity.
2 Find equilibrium (Q*,P*).
3 Compute the areas of CS and PS using
formula A=1/2*b*h.

7. Consider the following labor market when there
is a price floor (minimum wage).
wS=3+L wD=10-3/2L mw=6.5
Is there an inefficiency? What is it called?
A. No, equilibrium wage prevails
B. Yes, minimum wage causes dead weight loss
C. Yes, minimum wage causes unemployment

8. Deadweight loss (DWL)
• Write your definition down on a piece of
paper.
• After you finish, I’ll reveal my definition
below:
• DWL: The sum of total surplus lost due to a
market imperfection.
• What are the differences between your
definition and mine?

9. Consider the following labor market when there
is a price ceiling (minimum wage).
wD=3+L wS=10-3/2L mw=6.5
Is there an inefficiency? What is it called?
A. No, equilibrium wage prevails
B. Yes, minimum wage causes dead weight loss
C. Yes, minimum wage causes unemployment

10. Correct answer: B
• An ``inefficiency’’ in this context is a loss of
surplus.
• Unemployment isn’t necessarily ``good,’’ but
there is not a direct connection with efficiency
here.

11. Marginal Revenue: Think
• What is the geometric interpretation of total
revenue?
• How is this connected with marginal revenue?

12. Marginal Revenue Example: Simple
Demand Curve
P Q TR MR
2 8 16 16
4 6 24 8
6 4 24 0
8 2 16 -8

13. Marginal Revenue: Answer
• What is the geometric interpretation of total
revenue?
• How is this connected with marginal revenue?