Question
a. In a competitive market, the following supply and demand equations are given: Supply: P = 5 + 0.36Q Demand: P = 100 - 0.04Q,
a. In a competitive market, the following supply and demand equations are given:
Supply: P = 5 + 0.36Q
Demand: P = 100 - 0.04Q,
where P represents price per unit in dollars, and Q represents rate of sales in units per year.
i. Determine the equilibrium price, sales, elasticity at the equilibrium and total revenue.
(12 marks)
ii. Determine the deadweight loss that would result if the government were to impose a price ceiling of $40 dollars per unit.
(12 marks)
b. A monopolist faces a demand with constant elasticity of -3. It has a constant marginal cost of $40 per unit and set a price to maximize profit.
If marginal cost should increase by 35%, would the price change also rise by 35%?
(6 marks)
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