Answered: The following table shows the demand…

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 14CQ

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Question

The following table shows the demand and supply for a popular pair of shoes sold by Akron Enterprise Limited (AEL).

Price per pair $	Qty. Demanded	Quantity supplied	Market condition	Presure on price
105	25000	75000	surplus	downward
90	30000	70000	surplus	downward
75	40000	60000	surplus	downward
60	50000	50000	equilibrium	No pressure
45	60000	35000	shortage	upward
30	80000	20000	shortage	upward
15	100000	5000	shortage	upward

Other information regarding AEL are as follows:

Fixed cost = $2000 Variable Cost = 20Q

Question 1

a. Graphically illustrate market equilibrium using the information in the above table.

b. Explain and graphically illustrate a price floor implemented by the government using an appropriate price in the table above.

c. If Akron Enterprise Limited sells its products at equilibrium price, calculate total revenue and total profit.

d. At what level of price(s) identified above is a shut-down price for Akron Enterprise Limited.

e. Graphically illustrate a shutdown position for a typical firm.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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