Question

20 Points Each. Hand draw answers and upload. Consider a city that has cell phone case stands operating throughout the midtown area. Suppose each vendor has a marginal cost of $5.00 per case and no fixed cost. Suppose the maximum number of cell phone cases that any one vendor can sell is 70 per day. 1. If the price of a cell phone case is $15.00, how many cases does each vendor want to sell? B. If the industry is perfectly competitive, will the price remain $15.00 per case? If not, what will the price be? Why? B. If each vendor sells exactly 70 cell phone cases a day and the demand for cell phone cases for vendors in the city is Q=1000-20P, how many vendors are there? 2. The domestic supply and demand curves for washing machines are as follows: Supply: P=2800+5Q Demand: P=4300-50 where P is the price in dollars and the Q is the quantity in millions. The U.S. is a small producer in the world washing machine market. Where the current price (which will not be affected by anything we do) is $3,000. Congress is considering a tariff of $500. A. Calculate and graph all points for the domestic market for washing machines price and quantity equilibrium. B. Find the domestic quantity demanded and supplied of washing machines that will result if the price imposition of $3,000 is imposed. Show on graph. Explain. C. Find the domestic quantity demanded and supplied of washing machines that will result if the s500 tariffe

Answer 1

marginal cost = $5.00 per case

a) If price of phone case = $15.00, then each vendor would like to sell the maximum it can in a day, that is 70 cases. This is because price that they receive for each case is more than the MC that they have to bear.

B) In perfect competition, Price would become equal to MC = $5 per case instead of $15 per case. This is because at price of $15, there is a profit in selling cases. Seeing these profits, other sellers would enter into the market and hence, supply would increase and the price would fall. This would keep on happening till price becomes equal to MC and there is no longer any incentive for any other seller to enter into the market.

c) Each sellers sells 70 cases a day.

Demand for cases: Q=1000-20P

It ia given in part a) that P= $15

When market price = $15, then Q = 1000-20*15 = 700 units.

700 units is the total market demand.

If each seller sells 70 cases, then number of sellers = total market demand/ quantity sold by each seller = 700/70 = 10

Question 2

2.a) Supply: P=2800+5Q

When P=0, quantity supplied = 2800

When quantity supplied = 150, P = 3550

Plot (0,2800) and (150,3550) in order to get the demand curve.

Demand: P=4300-5Q

When P=0, quantity demanded = 860

When quantity demanded =0 , P = 4300

Plot (0,4300) and (860,0) in order to get the demand curve.

Equilibrium occurs at a price where Quantity demanded = quantity supplied

4300-5Q=2800+5Q

10Q=1500

Q=150

When Q=150, then P=2800+5Q = 2800 + 750 = 3550

Equilibrium price = 3550

Equilibrium quantity = 150

Price of washing machine ($) 4300 supply 3550 3000 2800 Demand - 40 150 260 860 Quantity of washing machines

b) If price = $ 3000. This is denoted by red line in the figure. Put price in demand and supply equation to find the quantity supplied and quantity demanded.

3000 = 2800+5Qs

Qs= 40

Quantity supplied = 40

300 = 4300-5Qd

Qd= 260

Quantity demanded = 260

When the price falls, consumers would want to buy more of washing machines as dictated by law of demand. So, they increase the demand as price falls to $ 3000. At the same time, producers would now be willing to produce less of washing machines as they get lower price for the washing machines. Hence, quantity supplied falls.

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