Consider a Competitive Market in Which the Market Demand for the Product

question 112

Essay

Consider a competitive market in which the market demand for the product is expressed as
P = 75 - 1.5Q,
and the supply of the product is expressed as
P = 25 + 0.50Q.
Price, P, is in dollars per unit sold, and Q represents rate of production and sales in hundreds of units per day. The typical firm in this market has a marginal cost of
MC = 2.5 + 10q.
a. Determine the equilibrium market price and rate of sales.
b. Determine the rate of sales of the typical firm, given your answerto part (a) above.
c. If the market demand were to increase to P = 100 - 1.5Q, what would the new price and rate of sales in the market be? What would the new rate of sales for the typical firm be?
d. If the original supply and demand represented a long-run equilibrium condition in the market, would the new equilibrium (c) represent a new long-run equilibrium for the typical firm? Explain.

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Definitions:

Correlation Coefficient

A numerical metric that determines the intensity and orientation of a straight-line association between two factors.

Covariance

A measure of how two random variables change together, indicating the direction of their linear relationship.

Variances

Statistical measures that represent the degree of spread in a data set, indicating the variability around the mean.

Expected Rate of Return

The anticipated amount of profit or loss an investment is projected to generate over a specific period, expressed as a percentage.