The following relations describe monthly demand and supply for a computer support service catering to small businesses:
Qd = 3,000 - 10 P
Qs = -1,000 + 10P
where Q is the number of businesses that need services and P is the monthly fee, in dollars.
1) At what average monthly fee would demand equal zero?
2) At what average monthly fee would supply equal zero?
3) Plot the supply and demand curves.
4) What is the equilibrium price/output level?
5) Suppose demand increases and leads to a new demand curve:
Qd=3,500 - 10P
what is the effect on supply? What are the new equilibrium P and Q?
6) Suppose new suppliers enter the market due to the increase in demand so the new supply curve is Q= -500 + 10P. What are the new equilibrium price and equilibrium quantity?
7) Show these changes on the graph.