The market for apples at the farmers' market on McGill campus is served by many small producers, of approximately the same size, who produce and sell the same variety of Macintosh apples. It costs each producer 50 cents to produce and sell 1 kg of apples.

1. Which model best represents the market for apples on McGill campus? Explain. (2 pts)

If apples were given away for free, 100 kg would be sold each day on campus and any price above

2$ would result in zero sales.

2. Knowing that demand can be represented by a function of the form P (Q) = a bQ, find a (the

intercept) and b (the slope) and represent the demand for apples on a graph. (2 pts)

3. How many kg of apples are sold each day at the farmers' market and at which price? (1 pt)

4. Is this outcome efficient? Explain. (2 pts)

5. How many kg of apples would be left unsold if the price increased by 10%? Is demand elastic at this price? (2 pts)

6. Do you expect revenues to increase if the price increased by 10%? Explain. (1 pt)

The producers form a cooperative to coordinate sales and set the price, acting like a single firm.

7. Which price does the cooperative set? How many kg of apples are now sold on campus every day? Does the cooperative make any profit? (2 pts)

8. Is this outcome efficient? Use a graph to compare the outcome with a cooperative to that with many independent producers. Comment. (2 pts)

9. If the cooperative faced two independent producers, who could jointly produce and sell only 5 kg of apples per day, how would the behavior of the cooperative change? (BONUS: +2 pts)

The cooperative carries out some market research to better understand the preferences of apple buyers on the McGill campus. It discovers that there are two types of buyers, based on their willingness to pay for apples.

10. If the cooperative knew that the apple lovers are on campus only in the morning while the others come later in the day, would it change its pricing strategy? (2 pts)

11. If the two groups could not be distinguished by their characteristics or behavior, what could be done instead? (2 pts)

12. Which strategies are those in questions 10 and 11? What is the difference between the two? Would the cooperative want to change its pricing strategy? Would buyers benefit? (2 pts)