YOU MUST SHOW YOUR WORK. You may do on paper and scan or take picture and upload. Questions attached. (3 Problems)
chapter_9_problem_assignment.docx
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YOU MUST SHOW YOUR WORK
Chapter 9
1.
The market demand and supply function for pizza in Oldtown were:
QD = 13,000 – 900P
QS = -3000 + 1100P
Determine algebraically the equilibrium price and quantity. (10 points)
2. Suppose that in a city there are 100 identical self-service gasoline stations selling the same
type of gasoline. The total daily market demand function for gasoline in the market is QD
=60,000 – 12,500P, where P is expressed in dollars per gallon. The daily market supply curve is
QS = -10,000 + 500P
a. Determine algebraically the equilibrium price and quantity of gasoline.
b. Now suppose the market is monopolized (e.g., a cartel is that determines price and
quantity as a monopolist would). Determine the monopolist’s profit-maximizing price and
quantity.
c. What is the dead weight loss (DWL)? (20 points)
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To work part b:
1. Find reverse demand curve (to put it in $)
2. Find MR curve (double reverse demand slope coefficient)
3. Find reserve supply curve (it is the marginal cost)
4. Set MR = MC and solve
To work part c, dead-weight loss triangle is ½(base x height)
1. Base is difference between monopoly and competitive quantities
2. Height is difference between price and marginal cost (supply price)
Reference diagram on p. 405. It shows the idea of a DWL triangle but unlike the
diagram, this problem has upsloping MC/S curve. You must calculate the MC to find the
triangle.
3. Determine the best level of output for a perfectly competitive firm that sells its
product at P =$3 and faces TC = .01Q3 – .5Q2 + 10Q + 7
Will the firm produce at this level of output? Why? (10 points)
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Apply MR = MC rule to find loss-minimizing (it will be a loss) output.
Check the use of the rule—does price cover average variable cost (AVC) at MR = MC? If not then
the MR = MC rule is inappropriate and the firm should shut down.
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