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Determining market entrance

Suppose the market demand and supply functions are QD = 430 - 5P and QS = 2P + 318. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.

a. Determine the equilibrium price and quantity in this market.
b. You've researched and found that most firms in the market currently experience costs such that TC = 50 + 16Q - 2Q2 + 0.2Q3. Determine whether or not you should enter this market. Use graphs to support your answer.
c. Due to unforeseen delays, you don't enter the market. However, a year later the market supply has changed to QS = 2P + 290. Are you surprised at this shift in supply?
d. Given the new supply conditions, determine whether or not you should enter the market.

Solution Preview

See the attached file. Thanks.

Suppose the market demand and supply functions are QD = 430 - 5P and QS = 2P + 318. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.

a. Determine the equilibrium price and quantity in this market.
P QD QS
0 430 318
5 405 328
10 380 338
15 355 348
16 350 350
20 330 358
25 305 368
30 280 378
35 255 388
40 230 398
Looking at the Graph
Equilibrium Quantity 350
Equilibrium price 16

Solving algebraically: AT equilibrium, QS=QD
430-5P = 2P+318
5P+2P=430-318
P= 16
Q= 350

b. You've researched and found that most firms in the market ...

Solution Summary

The solution finds the equilibrium price and quantity for two different market supply options.

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