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Access Demand for Apartments and Profit Maximizing Price

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1. Recent increases in rents has lead the citizens of Elmville to vote in a rent ceiling of $1200. Assuming all rental units in Elmville are identical and the supply and demand for rental units are given by
Qs = -1000 + 20P
Qd = 50000 - 10P
What will be the excess demand for apartments once the price ceiling is implemented?

2. Joe's Barber Shop has a daily total cost function of
TC = 100+ 4Q + Q^2
and the daily demand for his services is
Q = 50 - 2P
What is the profit maximizing price that Joe should charge for his services?

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Solution Summary

There are two problems. Solution to first problem calculates the excess demand if price ceiling is implemented. Solution to second problem calculates profit maximum price level.

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1. Let us first find equilibrium rent.
Put Qd=Qs
50000-10P=-1000+20P
51000=30P
P=$1700

Rent ceiling of $1200 is definitely below the equilibrium rent ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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