Assume that the weekly supply of 16 oz bottles of soda at convenience stores in the Twin Cities of Minneapolis and St. Paul is a function of price such that:

Qs = -20 + 80P

Where Q is the number of sodas sold in convenience stores (in thousands) and P is the soda price. Assume demand is perfectly elastic at a price of $ 1.

A)Derive the soda supply curve where price is expressed as a function of output. Calculate the equilibrium level of output and convenience store sales revenue.

B)Derive a second curve based upon the assumption convenience store sales become subject to a 5-cent recycling fee. Calculate the price and quantity effects of the recycling fee. With perfectly elastic demand, who pays the economic burden of such a fee?

Solution is attached herewith as word document also.

Solution:

Derive the soda supply curve where price is expressed as a function of output. Calculate the equilibrium level of output and convenience store sales revenue.

Demand is perfectly elastic at a price of $1, A firm can sell unlimited quantity at this price. So, equilibrium Price is $1. ...

Solution Summary

Solution describes the steps for finding equilibrium price and quantity of soda bottles in case demand is perfectly elastic. It also studies the effect of 5 cent recycling fee on equilibrium.

Equilibrium price and quantity, elastic demand, inelastic supply. 1. Suppose the demand is Q = 10 - P and the ... price and quantity sold under perfect competition? ...

... Price Quantity Demanded $12 1 10 2 8 3 6 4 4 5. ... b) Is the demand elastic or inelastic in this range? ... Let us assume perfectly competitive environment,. ...

... between a change in the quantity demanded of a ... 50 p/q = 150/14 = 75/7 Elasticity of Demand = (-50) * (75 ... It is Unit Elastic when elasticity is one, elastic when ...

... cost will always price in the unit elastic range of the demand curve. 1. Construct a Supply/Demand (S/D) graph, identify the initial equilibrium, then identify ...

... So the consumer surplus is infinite. If market demand is perfectly elastic, we will have see zero quantity demanded if price increase by a very small ...

... its price elasticity is quite inflexible of elastic. ... major forms of markets include: Perfect competition: A ... more producers are available to satisfy demand. ...

... The equilibrium market price and quantity is: aP = $5.00, Q = 6 thousand bottles. ... b.demand had shifted out along a perfectly elastic supply curve. ...

... of demand at the equilibrium price and quantity? 3 What is the price elasticity of supply at the equilibrium price and quantity? If a per-unit excise tax of ...

... Thus price elasticity of demand is. ... We take its absolute value to say the elasticity is 2. ... 15 + 2Q, the new supply curve with a subsidy of $9 per unit would be ...