Question

1. Consider the market for AT&T Sim Cards in the U.S., suppose their demand and supply curves are given by the following equations:

Q = 26,000 – 600P Q = 9,000 + 1,100P

Where P is measured in dollars Q is the number of Sim Cards sold per year.

1. a. Find the equilibrium price and quantity in this market?
2. b. Draw the graph to show the equilibrium price and quantity
3. c. Suppose the price is currently equal to $8 in this market. What problem would exist in this market? What would you expect to happen to price to solve this problem? Show this on your graph.
4. d. Suppose the price is currently equal to $12 in this market. What problem would exist in this market? What would you expect to happen to price to solve this problem? Show this on your graph.
5. e. Assuming we have only AT&T and T-Mobile in the U.S. GSM market, and

T-Mobile suddenly increase the price of its sim card and data plans, all else equal. Which of the following might be the new demand curve for AT&T? Briefly explain why you choose such demand curve.

Q = 24,000 – 600P Q = 29,000 – 600P

Answer 1

*. a) Tha demana ana spp is iven an demand : 6 26000 600 P sim Cards h shown below: Excess 9s 6 2 s. (in tcnspmds 22.2 21 2 1, 800. Thui* a* pmice 이$8 叶heru wut be shor tage in the market In time of shorlao tna wtho wiu wi ffer hiahe micef *) Ai P12, the supply,ク4.22,200, Them the uing vent hmW offer the good aトlower mice, Thi wu To seu thu excess Some brm m vemNo m t price below 412 Thu price

E.

In this case AT and TM are competitive firms producing same good, the sim card. Then the products of the firms are substitutes of each other. Two goods are said to be the substitute if the increase in the price of one good increases demands others. Here as the price of TM rises, the demand for AT will rise. Thus the demand curve will shift up. The new demand curve will have a higher intercept than the initial one.

Then the new demand should be: Q=29000-600P