The Market Demand for a Type of Carpet Known as KS-12

question 130

Essay

The market demand for a type of carpet known as KS-12 has been estimated as
P = 75 - 1.5Q,
where P is price ($/yard), and Q is output per time period (thousands of yards per month). The market supply is expressed as P = 25 + 0.50Q. A typical competitive firm that markets this type of carpet has a marginal cost of production of
MC = 2.5 + 10q.
a. Determine the market equilibrium price for this type of carpet. Also determine the production rate in the market.
b. Determine how much the typical firm will produce per week at the equilibrium price.
c. If all firms had the same cost structure, how many firms would compete at the equilibrium price computed in (a) above?
d. Determine the producer surplus the typical firm has under the conditions described above. (Hint: Note that the marginal cost function is linear.)

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Definitions:

NAFTA

The North American Free Trade Agreement, a trilateral trade bloc in North America created by Canada, Mexico, and the United States.

United States

is a federal republic in North America comprising 50 states, a federal district, five major self-governing territories, and various possessions.

Ordinance

A piece of legislation enacted by a municipal authority covering matters not already covered by federal or state law.

Cost Benefit Analysis

An evaluation process that compares the costs and benefits of a project or decision to determine its viability or worth.