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economics: equilibrinum price

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Given these demand and supply curves,

Q = 70  2P Demand

Q = 10 + P Supply

Solve for equilibrium price and quantity.

The demand curve shifts in to the left by 15 units. Solve for the new equilibrium price and quantity.

 \$ MC


ATC

 P D = AR = MR



 Q1 Q2 Q3 Quantity

How much output should this perfect competitor produce? At that level of output, is the firm making an economic profit, an economic loss or breaking even?

 Price

 Coordinates are (P, Q)
Price first, Quantity second.

A o (10, 5)

B o (6, 8)

Demand


Quantity

Starting at A on the demand curve above, what is the price elasticity of demand in moving from A to B?

Han

Limit price

Monopoly price

Coa
Limit price

1.5, 3.0
2.5, 2.0

Monopoly price

1.0, 4.0
1.75, 3.0

(Payoffs are in billions of dollars.)

This is the game from Assignment #3. The industrys best outcome is the bottom left cell, where total profits are 1.0 + 4.0 = 5.0, and the only way to get there is through an agreement.

What do you think the negotiated payoff to each firm would be in such an agreement?

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Solution Preview

QUESTION

1. Given these demand and supply curves,
Q = 70 - 2P Demand
Q = 10 + P Supply
a. Solve for equilibrium price and quantity.
b. The demand curve shifts in to the left by 15 units. Solve for the new equilibrium price and quantity.

TUTORIAL

1.
The equilibrium price is the price at which demand, for a product and its supply are equal.
Q = 70 - 2P Demand (1.0)
Q = 10 + P Supply (1.1)

Substituting Q as 70 - 2P in (1.1) we get:
70 - 2P = 10 + P Supply (1.2)

Aggregating similar like terms together we get,
70 - 10 = P + 2P Supply
3P = 60
P = 20

Substituting P as 20 in (1.0), we get,
Q = 70 - 2(20)
Q = 30
The equilibrium quantity is then 30 units.

B.
The shift in the demand curve means that the units for each demand will reduce by 15. The demand equation then changes from 70 - 2P to (70 - 15) - 2P.
Q = 55 - 2P Demand (1.3)
Q = 10 + P Supply (1.4)

Substituting P as Q - 10 in (1.3), we get,
Q = 55 - 2(Q - 10)
Q = 55 - 2Q + 20
Q + 2Q = 55 + 20
Q = 75/3
Q = 25

QUESTION

...

Solution Summary

The problem deals with concepts in economics for equilibrium prices.

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