Suppose that the market demand curve is 
and the market supply curve is 
.
a.Calculate the equilibrium price and output level.
b.Suppose a price floor of 16 is imposed in this market.What is the new equilibrium quantity transacted in the market?
c.How does the price that firms receive -- net any additional marginal effort costs they incur -- compare to the price consumers pay?
d.What is the total cost of the additional effort firms have to exert in equilibrium?
Definitions:
CAPM
Capital Asset Pricing Model, a theory that describes the relationship between systematic risk and expected return for assets.
Target Capital Structure
The mix of debt, equity, and other financing sources a company aims to use to fund its operations and growth.
Market Risk Premium
The additional financial return an investor aims to achieve by having a risky market portfolio instead of investments that are risk-free.
WACC
Weighted Average Cost of Capital, a calculation of a firm's capital cost that weighs each category of capital (equity, debt) proportionately.
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