The supply function is Q- 60 +2p - 20r, and the demand function is Q 260-2p,...

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The supply function is Q- 60 +2p - 20r, and the demand function is Q 260-2p, where r is the rental cost of capital. How do the equilibrium price and quantity vary with r? др The effect of r on the equilibrm price iser your resonse as a whole number)

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Answer 1

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Q = 60 + 2p - 20r ----------------Supply function

Q = 260 - 2p ----------------------Demand function.

Equilibrium in the market occurs at then price at which Quantity demand = quantity supplied or when Demand and supply curve intersect.

Hence at equilibrium, 60 + 2p - 20r = 260 - 2p

=> 4p = 200 + 20r

=> p = 50 + 5r ------------------Equilibrium Price

hence,

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Hence Effect of r on equilibrium price is :

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Answer 2

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