Question

Suppose that three firms are considering entering a new market for crypto-currency-backed health insurance plans. Each has a different approach to the market and thus a different supply curve as follows: ?1(?)=?, ?2(?)=?−2, and ?3(?)=2?−8

On the graph below, draw each firm's supply curve. Be sure each curve is drawn from one edge of the graph to another.

Now draw the industry supply curve for this market (if the curve is kinked, use multiple line segments that overlap).

Suppose that demand for this new service is given by ?(?)=7−?

What is the market equilibrium price?   $

Answer 1

(1) ?1(?)=?, ?2(?)=?−2, and ?3(?)=2?−8

Price 17 16 15 14 13 12 11 10 9 8 7 6 5 4. 3 2 1 0 s1 s2 S3 0 1 2 3 4 5 6 7 00 9 10 11 12 13 14 15 16 17 quantity

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(2) S1 = P

S1 will supply at all price level.

S2 = P -2

S2 will supply for price above 2.

S3 = 2P - 8

S3 will supply for price above 4.

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So, S1 willl supply only for price range 0 to 2.

i.e., S = P (If 0 < P < 2)

S1 and S2 will supply for price range 2 to 4

i.e., S = S1 + S2

=> S = P + P - 2

=> S = 2P - 2 (If 2 < P < 4)

S1, S2 and S3 will supply for price above 4.

i.e., S = S1 + S2 + S3

=> S = P + P -2 + 2P - 8

=> S = 4P - 10 (If P > 4)

Industry Supply:

	P	if 0 < P < 2
S =	2P - 2	if 2 < P <4
	4P - 10	if P>4

P	S
0	0
1	1
2	2
3	4
4	6
5	10
6	14
7	18

Industry supply 7 6 Сл 4 Price 3 Industry supply 2 1 0 T T 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Quantity

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(3) Industry Demand: D = 7 - P

At market equilibrium point, industry demand and industry supply curve intersects each other.

i.e., industry demand = indusrtry supply.

8 7 6 5 Price 4 3 - Industry supply -Demand 2 1 O 0 1 2 3 4 5 9 10 11 12 13 14 15 6 7 8 Quantity

P	S	D
0	0	7
1	1	6
2	2	5
3	4	4
4	6	3
5	10	2
6	14	1
7	18	0

The market equilibrium price is $3