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Assignment2_Solutions

# Assignment2_Solutions - ECON 103 Fall 2008 Simon Fraser...

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ECON 103, Fall 2008 Simon Fraser University Assignment 2 Solutions Problem 1 John’s daily demand for milk is given by P = 20 - Q J where Q is pints of milk and P is the price he is willing to pay for each pint. Mary’s daily demand for milk is given by P = 15 - Q M . Mary has a cow that yields 15 pints of milk per day. (a) How many pints of milk will John buy from Mary and at what price? One way is to use the box with marginal values. In the equilibrium it must be that MV J = MV M , the MVs are equalized and also the total quantity of milk that John and Mary consume is equal to 15. This gives us two equations: 20 - Q J = 15 - Q M and Q J + Q M = 15, which solves for Q J = 10. Then the market price must be P = 20 - 10 = 10. Alternatively you can use the aggregate demand: Q D = Q M + Q J . Solve individual de- mands for Q M = 15 - P and Q J = 20 - P , plug into the market demand Q D = 35 - 2 P . Then the market demand is represented by John’s demand for any price above 15 and
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