DiagPrblms_Ans - Industrial Organization: EC460 Spring 2009...

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Industrial Organization: EC460 Spring 2009 Instructor: Thomas D. Jeitschko Instructions you do on this will not a/ect your grade in the class. 1 A perfectly competitive market Consider a market in which demand is given by P = 100 2 Q and supply is given by P = 10+ Q . 1. Depict the market in a diagram. Answer As in < Fig1.1 > 2. Calculate the market equilibrium. Answer At the market equilibrium, demand is equal to supply. 100 2 Q = 10 + Q 3 Q = 90 Q = 30 P = 100 2 Q P = 100 2(30) P = 40 Answer 1
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P Q 40 30 S D <Fig1.1> P Q 40 30 S D CS PS 100 10 <Fig1.2> 2
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P Q 37 27 S D 100 10 D-t 91 <Fig1.3> CS PS In < Fig1.2 > , Consumer Surplus and Producers Surplus are calculated from the area CS and PS . CS = 1 2 (30) (100 40) = 900 PS = 1 2 (30) (40 10) = 450 4. Redo the above exercises if a sales tax of T = 9 is imposed on the market.
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DiagPrblms_Ans - Industrial Organization: EC460 Spring 2009...

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