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). MC 1 = 150 + 2q1 MC2 = 200 + 1q2 WTP = 400 -1(q 1+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). MC 1 = 150 + 2q1 MC2 = 200 + 1q2 WTP = 400 -1(q 1+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). MC
1 = 150 + 2q1 MC2 = 200 + 1q2 WTP = 400-1(q
1+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: (a) Draw the graphs of the given equation.

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Step 3: (b) Determine the optimal amount of q1 and q2.

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Step 4: (c) Determine the optimal amount of q1 and q2 with new demand equation.

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Step 5: (d) Draw the graphs with new demand equation.

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