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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 Preview

    1. Let us first find equilibrium rent.
    Put Qd=Qs

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

    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.