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ME Tutorial 13

Q1. Universal Exports has estimated the following monthly demand equation for its gourmet French pizza, Andrews
Appetizer: QD = 500 100P + 50I + 20Pr + 30A
where QD = quantity demanded per month, P = price per unit, I = per-capita income (thousands of dollars)
Pr = price of another gourmet product, Franoiss Frog Legs, A = monthly advertising expenditures ($000s)
The supply equation for Andrews Appetizer is
Qs = 1,350 + 450P
a. What is the relationship between Andrews Appetizer and Franoiss Frog Legs?
b. Suppose that I = 200, Pr = 80, and A = 100.What are the equilibrium price and quantity for this product?
c. Suppose per-capita income increases by 55. What are the new equilibrium price and quantity for this product?

Q2. The market supply and demand equations for a given product are given by the expressions
QD = 200 50P; QS = -40 + 30P
a. Determine the equilibrium price and quantity.
b. Suppose that there is an increase in demand to QD = 300 50P
Suppose further that there is an increase in supply to QS = -20 + 30P
What are the new equilibrium price and quantity?
c. Suppose that the increase in supply had been QS = 140 + 30P
Given the demand curve in part b, what are the equilibrium price and quantity?
d. Diagram your results.

Q3. Suppose that a perfectly competitive industry comprises 1,000 identical firms. The market demand (Q D) and
supply (QS) functions are QD = 170,000,000 - 10,000,000P
QS = 70,000,000 + 15,000,000P
a) Calculate the equilibrium market price and quantity?
b) Given your answer to part A, how much output will be produced by each firm in the industry?
c) Suppose that one of the firms in the industry goes out of business. What will be the effect on the
equilibrium market price and quantity?

ME Tutorial 13
Q1. Universal Exports has estimated the following monthly demand equation for its gourmet French pizza, Andrews
Appetizer: QD = 500 100P + 50I + 20Pr + 30A
where QD = quantity demanded per month, P = price per unit, I = per-capita income (thousands of dollars)
Pr = price of another gourmet product, Franoiss Frog Legs, A = monthly advertising expenditures ($000s)
The supply equation for Andrews Appetizer is
Qs = 1,350 + 450P
a. What is the relationship between Andrews Appetizer and Franoiss Frog Legs?
b. Suppose that I = 200, Pr = 80, and A = 100.What are the equilibrium price and quantity for this product?
c. Suppose per-capita income increases by 55. What are the new equilibrium price and quantity for this product?

Q2. The market supply and demand equations for a given product are given by the expressions
QD = 200 50P; QS = -40 + 30P
a. Determine the equilibrium price and quantity.
b. Suppose that there is an increase in demand to QD = 300 50P
Suppose further that there is an increase in supply to QS = -20 + 30P
What are the new equilibrium price and quantity?
c. Suppose that the increase in supply had been QS = 140 + 30P
Given the demand curve in part b, what are the equilibrium price and quantity?
d. Diagram your results.

Q3. Suppose that a perfectly competitive industry comprises 1,000 identical firms. The market demand (Q D) and
supply (QS) functions are QD = 170,000,000 - 10,000,000P
QS = 70,000,000 + 15,000,000P
a) Calculate the equilibrium market price and quantity?
b) Given your answer to part A, how much output will be produced by each firm in the industry?
c) Suppose that one of the firms in the industry goes out of business. What will be the effect on the
equilibrium market price and quantity?
Solutions:
Q1.

Q2.
Q3.