Question

7. You and your few friends, none of whom are famous, have decided to sell flower arrangements for $6. Each of you is to produce 25 arrangements per day. a. What should you do if your dumb friend Kyle decides to produce 30 flower arrangements per day? b. What should you do if your other dumb friend Piper decides to charge $8 for her flower arrangements?

Answer 1

Given: equilibrium price= $6 and equilibrium quantity = 25

a) If Kyle decides to produce 30 flower arrangements per day, then the it is more than the equilibrium quantity (which is 25). As a result, there will be expansion of supply and hence Kyle will be stuck will stock at the end of the day, which will be less profitable.

b) If Piper decides to charge $8 for her flower arrangements, it will be greater than the equilibrium price(which is $6) and hence customers will not buy from Piper as they will get to buy flower arrangements at a lower rate from others. Contraction of demand will be observed if Piper charges $8.

A) KYLE Price 86F 30 Demand s Quantity Index Es equilibewum perite point. .. Because of the rise in quantity from 25 to 30 there is an expansion of supply. B) PIPER - Supply $6 Dad R 25 Quantity • Contration of demand will be observed if Piper charges 88, which will be I less profitable since demand is constant. Camsdonner Scanne with

Refer to the diagram,