Suppose That the U

question 15

Essay

Suppose that the U.S. market for bottled water is modeled as follows:
S = MSC = 1 + 0.3Q D = MSB = 5 - 0.1Q,
where Q is billions of gallons per year and MSC and MSB are in dollars per gallon.
a. What is the equilibrium quantity (Q_E) and price (P_E) in the U.S. bottled water market?
b. At equilibrium price and quantity, how much total revenue will bottled water suppliers receive in a given year?
c. Assume that concerns about tap water potability increase demand for bottled water, and that the new demand (D^' ) is represented by the following:
D^' = MSB^' = 7 - 0.1Q
What is the new equilibrium quantity (Q_E' ) and price (P_E ') in the U.S. bottled water market?

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