1) Short run market equilibrium Consider a market with 26 small producers, each with supply function: qs = P + 5 if P > 10, q° = 0 if P < 10, qs = 0 or 15 if P = 10, a) Write down the market-level supply function Q$(P) b) If demand in the market is given by QD = 850 – 10P, find the equilibrium price and quantity in the market c) Draw two graphs: one at the firm level and one at the market level. On both graphs, indicate the quantity produced and shade in producer surplus. On the market-level graph, draw the demand curve as well. d) Calculate producer surplus at both the individual and market level. e) Now suppose market demand drops to Qº = 400 – 10P. Once again, find quantities and producer surplus (individual and market level)
1) Short run market equilibrium Consider a market with 26 small producers, each with supply function: qs = P + 5 if P > 10, q° = 0 if P < 10, qs = 0 or 15 if P = 10, a) Write down the market-level supply function Q$(P) b) If demand in the market is given by QD = 850 – 10P, find the equilibrium price and quantity in the market c) Draw two graphs: one at the firm level and one at the market level. On both graphs, indicate the quantity produced and shade in producer surplus. On the market-level graph, draw the demand curve as well. d) Calculate producer surplus at both the individual and market level. e) Now suppose market demand drops to Qº = 400 – 10P. Once again, find quantities and producer surplus (individual and market level)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1) Short run market equilibrium
Consider a market with 26 small producers, each with supply function:
qs = P + 5 if P > 10,
q° = 0 if P < 10,
qs = 0 or 15 if P = 10,
a) Write down the market-level supply function Q$(P)
b) If demand in the market is given by QD = 850 – 10P, find the equilibrium price and quantity in the
market
c) Draw two graphs: one at the firm level and one at the market level. On both graphs, indicate the quantity
produced and shade in producer surplus. On the market-level graph, draw the demand curve as well.
d) Calculate producer surplus at both the individual and market level.
e) Now suppose market demand drops to Qº = 400 – 10P. Once again, find quantities and producer
surplus (individual and market level)
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