Explain the deadweight loss triangle
Open Word and answer the following questions. Save the document and print it when you are done.
1. From the CSandPS sheet, use Solver to find the optimal quantity. Take a picture of the cells that contain your answer and paste it in your Word doc.
2. With linear supply and demand, PS and CS are given by the following functions:
Use these functions to set up and solve the OOSP’s optimization problem. Show your work. Hint: Remember that if Q is greater than the intersection of supply and demand, we must subtract the rectangle given by (supply price minus demand price) times quantity.
3. Do the answers to questions 1 and 2 agree? Is this surprising? Explain why or why not.
4. Use the PriceControls sheet to set a price floor at $120 per unit. Click the Show DWL button. Take a picture of the chart with this price floor. Explain the deadweight loss triangle.