# Finding equilibrium price and quantity

The supply and demand for the paper firm is given by:

QS=100P-5000

and

QD=0.5 i + 0.2A-100P+5000

where Q is the quantity per year, P is price, I is income per household, and A is advertising expenditure.

a. If A=$10,000 and I =$25,000, what is the demand curve?

b. Plot the demand curve found in part A with the supply curve, then use the graph to find the equilibrium price and quantity.

c. If consumer incomes increase to $30,000, what will be the new equilibrium price and the new equilibrium quantity?

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#### Solution Preview

Please refer attached file for missing graphs.

a. If A=$10,000 and I =$25,000, what is the demand curve?

QD=0.5 i + 0.2A-100P+5000

Put I=$25000

A=10000

QD=0.5*25000+0.2*10000-100P+5000=19500-100P

b. Plot the demand curve found in part A with the supply curve, then use the graph to find the equilibrium price and quantity.

P QD QS

=19500-100P =100P-5000

112.5 8250 6250

115 8000 6500

117.5 7750 ...

#### Solution Summary

Solution describes the steps to determine equilibrium price and quantity. It also determines new equilibrium price and quantity following an increase in income level.