The Market for Cookies Is Represented by the Following Supply

question 7

Essay

The market for cookies is represented by the following supply and demand conditions:
Q^D = 1,000 - 200P and Q^S = 400P - 200, where P is price per box of cookies and Q measures boxes per day.
a. Solve for the equilibrium price and quantity and then use supply and demand curves to illustrate your answer.
b. Suppose the government places a quota of 500 boxes per day on cookies. Solve for the equilibrium price and quantity and then use supply and demand curves to illustrate your answer.
c. Calculate consumer surplus before and after the quota.
d. Calculate producer surplus before and after the quota.
e. Calculate the deadweight loss from the quota.

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Definitions:

Long-Run Average Total Cost

The average cost per unit of output when all input factors are variable, and economies of scale are fully exploited.

Production

The process of creating goods and services from various inputs like labor, knowledge, and raw materials.

U-Shape

A graphical representation describing a relationship or phenomenon that decreases, reaches a minimum point, and then increases, resembling the letter "U."

Economies of Scale

Reduction in per unit cost as the volume of production increases, due to factors like bulk purchasing and efficient use of resources.