Economics 51D
10 September 2007
PROBLEM SET 3
1.
Suppose that the monthly demand for pinkie rings in a certain New Jersey community is
given by the equation Q = 15,000 – 50P.
A.
How big is the market?
B.
What’s the most that this group of consumers is willing to pay for the rings?
C.
What’s the shape of the demand curve?
D.
What’s the change in quantity demanded if the price rises from $195 to $230?
E.
Calculate the total revenue curve for the pinkie ring market—that is, calculate the total
revenue from the sales of pinkie rings for each price between 0 and the maximum price that the
consumers are willing to pay (you calculated that in Part B, ‘member?)
Use increments of $5 to
do these calculations.
Print out your table and show the first 20 rows only.
F.
Graph the total revenue curve you calculated above.
G.
Now suppose the demand for pinkie rings is
Q =900000/P.
What does this demand function
look like (graph it, but let P run from 1500 to 3000 in increments of $10)?
What does the total
revenue curve for the market look like? (Graph it if you can’t describe it precisely in words).
2. Now suppose that in this same New Jersey community, the pinkie ring market is supplied by a
large number of goldsmith shops (though let’s not take the “goldsmith” part too literally).
A.
Suppose that the marginal cost for each goldsmith is given by MC(Q) = 1.1*Q + .25*Q
2
, and
their average variable cost is given by AVC(Q) = .28215*Q
2
4.5*Q + 42.8.
At what level of
production will the goldsmiths simply shut down and not produce?
B.
According to your answer to Part A, what is the minimum price that a pinkie ring must sell
for in order to induce a positive supply of pinkie rings?
C.
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 Fall '07
 Fullenkampf
 Economics, Supply And Demand, total revenue curve

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