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Suppose the inverse demand for gasoline is given by p-10-QD/2. a. Find the equilibrium price and quantity assuming supply is

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Answer #1

p = 10 - (QD/2) = 10 - 0.5QD

Total revenue (TR) = p x QD = 10QD - 0.5QD2

Marginal revenue (MR) = dTR/dQD = 10 - QD

Profit is maximized by equating MR and MC.

10 - QD = 3

QD = 7

p = 10 - (0.5 x 7) = 10 - 3.5 = 6.5

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