The motor company Ford started its latest manufacturing facility for Ranger bakkies in Silverton, Tshane, Gauteng. The company employs some 6000 workers who all received a housing subsidy. Most of these workers bought newly erected houses in a township development near the factory.

You saw an opportunity in the market and started a security gate motor installation business in the are. The following relations describe the monthly demand and supply conditions for your business catering to new houses owners in the area:

Qd = 7,000 - 6P

Qs = -1,000 + 2P

Where Q = number of security gate motors expected to be installed each month

P = the price per motor installed

Required:

1. What are the equilibrium price and output levels?
2. Calculate the elasticity of demand at the equilibrium point.
3. What is the meaning of the elasticity value and what action can you take to increase your revenue?
4. What should happen in your market, apart from an adjustment in your price, to increase your demand (and sales)?
5. Suppose the South African economy has recovered after the COVID-19 pandemic and the demand for bakkies increases substantially. Ford has extended its plant and employs another 3,000 employees. A new development was launched in the area where most of the new workers bought their new houses. As a result, the demand for your security gate motors (to be installed) changes to Qd = 5,000 - 4P. At the same time a competitor also starts to install security gate motors. This causes your supply curve to change to

Qs = -740 + 3P. Calculate the new equilibrium quantity and price levels.

1. What will happen with your revenue per month after the changes have taken place and why?
2. When will you know that you will continue to stay in business over the short run after the introduction of the competitor.