In Glutonia, there are 1,000 bakers who buy fl our to bake into bread. The marginal revenue product of fl our faced by each baker is MRPF = 60 − 0.01Q. The fl our market in Glutonia is perfectly competitive.
a. Each baker's inverse demand for fl our is simply his or her marginal revenue product for fl our. Add up the demands of all 1,000 bakers to find the market demand for fl our.
b. The market supply of fl our is given by QS = 150,000P. Solve for the market price of fl our.
c. At the price you found in (b), how many units of fl our will each baker choose to purchase to bake into bread?
d. Verify that the total amount demanded by all 1,000 bakers equals the equilibrium quantity in the market.
e. Suppose that a decrease in the price of bread reduces the marginal revenue product of fl our to MRPF = 60 − 0.02Q. Find the new market price and quantity, as well as the quantity purchased by each baker.