Chapter 1 Solutions

Chapter 1 Solutions - MIME 310 ENGINEERING ECONOMY...

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M I M E 3 1 0 E N G I N E E R I N G E C O N O M Y SOLUTIONS TO PROBLEM SET #1 – INTRODUCTION 1. i) The demand and supply curves are plotted in the graph below. 0 5 10 15 20 25 30 35 20 40 60 80 100 120 QUANTITY ('000 units/month) PRICE ($/unit) SUPPLY DEMAND Shortage The market equilibrium occurs at the intersection of the demand and supply curves, i.e. at a price of about $62/unit and a quantity of approximately 11 500 units/month . ii) If the price is frozen at $45/unit, there would be an excess demand (i.e. a shortage) of about 18 500 units/month (22 000 - 3500). As the quantity supplied at this price level would only be 3500, the price on the black market could reach a value as high as about $87/unit , the price associated with a demand of 3500 units. The increased demand and supply schedules associated with parts iii and iv are generated by adding the appropriate amounts (5000 units for demand and 6000 units for supply) to each quan- tity given in the table. Both the original and increased demand and supply curves are illustrated in the graph below. Note that the increased demand and supply curves are not parallel to the original curves. 1
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0 5 10 15 20 25 30 35 20 40 60 80 100 120 QUANTITY ('000 units/month) PRICE ($/unit) SUPPLY DEMAND INCREASED SUPPLY INCREASED DEMAND iii) The intersection of the increased supply curve with the original demand curve occurs at a price of about $56/unit and a quantity of some 14 800 units/month . These new equilibrium levels are as expected (lower price and higher quantity) following an increase in the level of supply (reflected by a shift to the right of the curve). iv) The intersection of the increased demand and supply curves occurs at a price of about $60/unit and a quantity of approximately 17 000 units/month . In this case, the new equilibrium state results in a lower price and a higher quantity than the original state. The increased quantity is as expected. However, the price resulting from the change in both schedules to higher levels may be lower or higher than that of the original state. The result is a function of the magnitude of the changes. 2.
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This note was uploaded on 04/25/2010 for the course MIME 310 taught by Professor Bilido during the Winter '08 term at McGill.

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Chapter 1 Solutions - MIME 310 ENGINEERING ECONOMY...

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