Suppose the following describe the marginal cost of extraction of a raw resource, the marginal cost of the recycled resource, and the demand for the resource (raw and recycled forms are perfect substitutes). MC1 = 150 + 2q1 MC 2 = 200+ 192 WTP = 400 -1(q1+q2) a) Draw a graph (clearly label the lines: Demand, MC1, MC2) b) Determine the optimal amount of q1 and q2 (show your work). c) If consumer preferences changed such that demand became: WTP = 225 4(q1 q2) what would be the optimal amount of q1 and q2? d) Also include a graph of the situation with the new demand.

Suppose the following describe the marginal cost of extraction of a raw resource, the marginal cost of the recycled resource, and the demand for the resource (raw and recycled forms are perfect substitutes). MC1 = 150 + 2q1 MC 2 = 200+ 192 WTP = 400 -1(q1+q2) a) Draw a graph (clearly label the lines: Demand, MC1, MC2) b) Determine the optimal amount of q1 and q2 (show your work). c) If consumer preferences changed such that demand became: WTP = 225 4(q1 q2) what would be the optimal amount of q1 and q2? d) Also include a graph of the situation with the new demand.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose the following describe the marginal cost of extraction of a raw resource, the marginal cost of the recycled
resource, and the demand for the resource (raw and recycled forms are perfect substitutes). MC1 = 150 + 2q1 MC
2 = 200 + 192 WTP = 400 -1(q1 + q2) a) Draw a graph (clearly label the lines: Demand, MC1, MC2) b) Determine the
optimal amount of q1 and q2 (show your work). c) If consumer preferences changed such that demand became: WTP
= 225 4(q1 + q2) what would be the optimal amount of q1 and q2? d) Also include a graph of the situation with the
new demand.

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Step 2: Graph the functions

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Step 3: Determine optimal quantity q1, q2

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Step 4: Determine new optimal quantity q1, q2

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