Question: A small town is served by many competing supermarkets, which have the same constant marginal cost. a. Using a diagram of the market for groceries,

A small town is served by many competing supermarkets, which have the same constant marginal cost.

a. Using a diagram of the market for groceries, show the consumer surplus, producer surplus, and total surplus.

b. Now suppose that the independent supermarkets combine into one chain. Using a new diagram, show the new consumer surplus, producer surplus, and total surplus. Relative to the competitive market, what is the transfer from consumer s to producers? What is the deadweight loss?

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