Question
The custom T-shirt printing business has many competitors, so that the perfect competition model may be considered a good approximation. Currently the market demand curve
The custom T-shirt printing business has many competitors, so that the perfect competition model may be considered a good approximation. Currently the market demand curve is given by Q = 120 − 1.5p, (1) where the market supply is given by Q = −20 + 2p. (2) [ ]
(1) What is the market equilibrium price and quantity? (a) p = 30, Q = 50 (b) p = 30, Q = 60 (c) p = 40, Q = 50 (d) p = 40, Q = 60
(2) Suppose there is a T-shirt craze that increases demand by 10% (that is, for each price, demand is now 10% greater than it was before the price increase). What is the new demand curve? (a) Q = 1.1 × (120 − 1.5p) (b) Q = (120 − 1.5p)/1.1 (c) Q = 0.9 × (120 − 1.5p) (d) Q = (120 − 1.5p)/0.9
(3) Now go back to the initial demand curve and suppose there is an increase in the cost of blank T-shirts, an essential input into the business of selling custom T-shirts. Specifically, for each unit by each supplier, the production cost goes up by 10%. What is the new supply curve? 1 (Hint you need first find the inverse supply curve) (a) Q = −20 + 1.82p (b) Q = −10 + 1.72p (c) Q = −10 + 2.76p (d) Q = −20 + 2.76p
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