HI,

For answer 4, why producers receive $7 for them? Where did this value came from?

Thanks in advance,

Answer 4

In the new supply function, the supplier receives $2 over the price paid by the consumers in the market. The new supply function is:

Qs=100(P+2)=100P+200

Demand function is given by: Qd=1200100P

Equating demand and supply:

Qd=Qs100P+200=1200100PP=5

Equilibrium quantity in the market is: Qd=12001005=700=Qs=1005+200=700

Consumers pay $5 for the tomatoes and the producers receive $7 for them.

The following image illustrates the equilibrium in the market with the new supply curve: