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Question 3: Problem Solving For a given market with the following demand and supply functions as...

Question 3: Problem Solving For a given market with the following demand and supply functions as below: Q = 500 – 0.5P (1) Q= –100+0.25 P (2) A new technology breakthrough enables the producers to increase their production of 40 at each alternative price, a. Derive new supply function b. Based on your answers to a, what is the new supply choke price c. Calculate new equilibrium price and quantity.

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Answer #1

A.

Supply curve equation:

Q = -100 + .25P

When technology helps producers to increase the production by 40 at each price level.

Then,

New supply equation is:

Q1 = -100 + .25P + 40

Or,

Q1 = -60 + .25P

--

B.

At choke price, Q1 = 0

Then,

0 = -100 + .25P + 40

P = 60/.25

P = $240

--

C.

At equilibrium

500-.5P = -100+.25P+ 40

500+ 60 = .75P

P = 560/.75

P = $746.67

Q = 500-.5*746.67

Q = 126.67

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