Price Theory

Lectured by lun pide

Assignment
By ngoun soksan , 60-32-45

Name: NGOUN Soksan (60-32-45)

Page: 1

Course: Price Theory

I.

Graph the supply and demand curve

Quantity Demanded $9 $8 $7 $6 $5 $4 $3 $2 $1 $20 40 60 80 100 120 140 160 Quantity Supplied

1. The equilibrium price and equilibrium quantity in this market is P=$6 , Q=81. 2. If the actual price in this market were above the equilibrium price, what might drive the market toward equilibrium is the decrease in Qd. And the decrease of Qd could be resulted from preference changes, fluctuation due to seasonal period, price changes of other products including necessity, substitutes and complements, buyers expectations, and so on. 3. If the actual price in this market were below the equilibrium price, what might drive the market toward equilibrium is the increase in Qd. And the increase of Qd could be resulted from preference changes, fluctuation due to seasonal period, price changes of other products including necessity, substitutes and complements, buyers expectations, and so on. II. Graph the supply and demand curve 1. What unusual about the supply curve is that the curve is vertical or that the tickets supplied are not changing as the price changes. This might be true because the seats where people can take are limited to 8,000 only. UC has those numbers of tickets available for sale. The tickets supplied are not changing based on the increase or decrease of Qd. And the price changes based on the event. If the event is well known, all ticket prices will increase due to higher demands. 2. The equilibrium price and quantity are P=8$ and Q=8,000 tickets 3. The new equilibrium price and quantity are P=12$ and Q=8,000 tickets.

Name: NGOUN Soksan (60-32-45)

Page: 2

Course: Price Theory

Quantity Demanded $25

Quantity Supplied

$20

$15

$10

$5

$2,000 4,000 6,000 8,000 10,000 12,000

III.

IV. a. Calculate the profit for each quantity Quantity 0 1 2 3 4 Total cost 8 9 10 11 13 Total revenue 0 8 16 24 32 Profit -8 -1 6 13 19 Marginal cost x 1 1 1 2 Marginal revenue x 8 8 8 8 The profit is maximized when the quantity is 5 or 6.

The amount of $1 bills you are willing to give up to get an additional $5 bill is 5. Thus, your MRS is 5.

5 19 40 21 6 8

6 27 48 21 8 8

7 37 56 19 10 8

b. Calculate the marginal cost and marginal revenues and graph them (included in answer a)
Marginal cost Marginal cost and revenue 12 10 8 6 4 2 0 0 1 2 3 4 5 6 7 Quantity Marginal revenue

Name: NGOUN Soksan (60-32-45)

Page: 3

Course: Price Theory

The two lines cross at the point of Quantity 5.5, or simply saying between quantity 5 and 6. It implies that the marginal cost and marginal revenue equal when the quantity change from 5 to 6, which means that it generates maximized profit. V. a. Calculate the equilibrium price and quantity of sugar (Qd = 85-5P, Qs = -20 + 10P) Equilibrium exist when Qs = Qd -20 + 10P = 85-5P 10P+5P = 85+20 15P = 105 P = 105/15= 7 Q = 85-5(7) Q = 50 Thus QE=50, PE=7 b. Find new equilibrium price and quantity (Qd=100-5P) Equilibrium exist when Qs = Qd -20 + 10P = 100-5P 10P+5P = 100+20 15P = 120 P = 120/15 = 8 Q = 100-5(8) Q = 60 Thus QE=60, PE=8 c. Find new supply function as following condition Equilibrium price in answer a PE = 7 , and Qd=100-5P a. Slope of supply function remain constant Qs = A+BP, but B which is slope of supply function is 10 So: Qs = A+10P Qs = Qd A+10P = 100-5P (P=7) A+10*7 = 100-5*7 A+70 = 100-35 =65 A = 65-70 =-5 Thus supply curve function is Qs= 10P-5 b. Intercept of supply function remain constant Qs = A+BP, but A which is intercept of supply function is -20 So: Qs = -20+BP Qs = Qd -20+BP = 100-5P (P=7) -20+7B = 100-5*7 7B = 100-35+20 = B = 85/7 Thus supply curve function is Qs 20

85

85 P 7

Name: NGOUN Soksan (60-32-45)

Page: 4

Course: Price Theory

VI. Find the equilibrium price and quantity (QE and PE)

Qd P 3 100 and Qs 2P 2 5P 70 Equilibrium exists, when Qd Qs P 3 100 2 P 2 5 P 70

P 3 2 P 2 5 P 30 0 ( P 3)( P 2 5 P 10) 0 P 3 0 and P 2 5 P 10 0 P 3 and P 2 5 P 10 0 P 2 5 P 10 0 b 2 4ac (5) 2 4(1)(10) 25 40 15 0 No root since P 0
Thus P=3

Q P 3 100 Q 3 3 100 Q 27 100 Q 73

Thus, QE = 73, PE =3

Name: NGOUN Soksan (60-32-45)

Page: 5

Course: Price Theory

VII. Find the marginal rate of substitution MRS(x,y) = MUx/MUy

1 2

U ( x, y ) x 3 y 3 MU ( x)
1 dU 1 ( y 3 ). ( x) 3 dx 3 2 2 2 1

1 MU ( x) ( y 3 )( x) 3 3
1

MU ( y )

1 dU 2 ( x 3 ). ( y ) 3 dy 3 1 1

2 MU ( y ) ( x 3 )( y ) 3 3 2 2 1 3 ( y )( x) 3 1 y 3 MRS ( x, y ) x 1 y 1 1 2 2x 2 3 ( x )( y ) 3 3
Thus, MRS (x,y) = y/(2x) VII. Find the value of x, which is goods to consume

U ( x) 2 x 2 20 x 50 dU 4 x 20 dx dU 0 dx 4 x 20 0 x 20 5 4

Thus, x =5

Name: NGOUN Soksan (60-32-45)

Page: 6

Course: Price Theory