The aggregate demand for a product is Q = 400 – 20P. The product has a marginal cost of production equal to (1/16)*Q + 2, i.e. the inverse-supply curve is P=(1/16)*Q + 2. a) Calculate the static efficient market price and quantity for this product. b) Calculate the net benefits (economic surplus) associated with this allocation and draw a graph explaining the outcome.

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a To find the static efficient market price and quantity we need to first set the aggregate demand e... View the full answer