1. The local board of directors in the Bloom college town is concerned about a recent explosion in apartment rental rates for students and other low-income renters. To combat the problem, a proposal has been made to institute rent control that would place a $900 per month ceiling on apartment rental rates. Apartment supply and demand conditions in the local market are:
Qs = -400+ 2P (Market Supply)
QD = 5,600 - 4P (Market Demand)
where Q is the number of apartments and P is monthly rent.
A. Estimate the equilibrium price/output solution.
B. Assess the consumer surplus producer surplus and social welfare produced at this activity level?
C. Determine the quantity demanded, quantity supplied, and shortage if an $800 per month ceiling policy is imposed on apartment rental rates.
D. Determine the amount of consumer and producer surplus with rent control.
E. Evaluate the change in social welfare in consumer surplus due to rent control.
2. Natural gas is in high demand as a clean-burning energy source for home heating and air conditioning, especially in major metropolitan areas where air quality is a prime concern. The domestic supply of natural gas is also plentiful. Government reports predict that gas recoverable with current technology from domestic sources is sufficient to satisfy production needs for more than 50 years. Plentiful imports from Canada are also readily available to supplement domestic production. To illustrate the net amount of social welfare generated in this vigorously competitive market, assume that market supply and demand conditions are
Qs = -2,000 + 800P (Market Supply)
QD = 4,500 - 500P (Market Demand)
where Q is output in million Btus (in millions), and P is price per unit. A British thermal unit (Btu) is an English standard unit of energy. One Btu is the amount of thermal energy necessary to raise the temperature of one pound of pure liquid water by one degree Fahrenheit at the temperature at which water has its greatest density (39 degrees Fahrenheit).
A. Calculate the equilibrium price/output solution.
B. Determine the amount of consumer surplus, producer surplus and net social welfare generated in this market.
C. Evaluate how your answer for Consumer Surplus in part B would change if QD =11000 - 500P instead?
3. The Sashimi Japanese restaurant, Inc., recently introduced an innovative new frozen dessert maker with the following revenue and cost relations:
P = $60 - $0.005Q (1)
TC = $88,000 + $5Q + $0.0005Q2 (2)
A. Estimate the price/output combination at which total profit is maximized?
B. Estimate the price/output combination at which total revenue is maximized?
C. Assess the output level at which average cost is minimized if the TC = 5000 + 5Q2.