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Equilibrium price and quantity and governmnet subsidy

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For Firm Y:

Use the demand function: P = 30 - 2Q
And the marginal cost function: MC = 20 to determine P and Q for profit maximization.

Then, suppose a government subsidy of $6 per unit is imposed.

What does the firm do with respect to price and quantity?

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Solution Summary

Shows how to calculate the equilibrium price and quantity and how it can be affected by governmnet subsidy.

Solution Preview

For profit maximization, we have MR=MC
TR=P*Q=30Q-2Q^2
MR=dTR/dQ=30-4Q
MC=20
Equating MR=MC we ...

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