Problem 1: Based on information you have, the supply and demand curves for an individual market are as follows:
Q = 500-5P
Q = 5P-200
a. Graph these curves with price on the vertical axis and quantity on the horizontal axis. Label the intercepts with the P axis for both curves
b. What are equilibrium price and quantity? Label these values on the graph.
c. What are the numeric values of consumer surplus, producer surplus, and total surplus given the equations above?
d. What is the quantity demanded and quantity supplied if market price is $80? What would we expect to happen to prices over time?
e. What is the quantity demanded and quantity supplied if market price is $50? What would we expect to happen to prices over time?
f. Now envision that the demand curve is now equal to Q=400-5P (complete parts a through e before doing this). Plot this new curve on the same graph as part b, showing the new equilibrium price and quantity.
g. List three specific things that would cause the shift in the demand curve you witness in part f (an increase or decrease in the number of buyers, for example)
Problem 2: Based on information you have you believe the demand curve for is as follows:
Q = 500-P
a. What is the revenue maximizing price and quantity (use calculus/algebra and show your work)
b. Graph the demand curve above and the total revenue curve (the two graphs combined), label the intercepts on both graphs, the maximum total revenue given the p and q from part a
c. You work at a firm that has a demand curve as listed above. Your boss tells you that your firm is currently charging a price of $200 and that by increasing prices the firm can increase revenue. Is this true? Explain why or why not.