ch3c - Chapter 3 (Supply and Demand), part 3 Monday, June...

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Chapter 3 (Supply and Demand), part 3 Monday, June 28
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TOTAL BENEFIT AND MARGINAL BENEFIT Suppose that consumers’ total benefit, as a function of quantity consumed, is TB(Q) = 120Q .5Q 2 For example, if Q = 10, then TB = 1200 50 = 1150. In other words, the consumers would collectively be willing to pay a maximum of $1150 for 10 units of the good. Suppose that the marginal benefit function, or rate of change in the total benefit function, is MB(Q) = ΔTB/ΔQ = 120 – Q
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FINDING THE DEMAND CURVE TB(Q) = 120Q .5Q 2 MB(Q) = ΔTB/ΔQ = 120 – Q To find the demand curve in a competitive market, set P = MB(Q), and solve for Q as a function of P. P = MB, MB = 120 Q P = 120 Q Q = 120 P This function gives the quantity demanded at any price. 0 2000 4000 6000 8000 0 25 50 75 100 125 150 quantity consumed TB -40 -20 0 20 40 60 80 100 120 140 0 25 50 75 100 125 150 quantity consumed MB
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TOTAL COST AND MARGINAL COST Suppose that producers’ total cost, as a function of quantity produced, is TC(Q) =.25Q 2 For example, if Q = 10, then TC = 25. In other words, the producers would collectively have to expend a minimum of $25 to produce 10 units of the good. The marginal cost function, or rate of change in the total cost function, is MC(Q) = ΔTC/ΔQ = .5Q
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QUESTION 1 (finding the supply curve) The total cost and marginal cost functions for suppliers are given as follows: TC(Q) =.25Q 2 MC(Q) = ΔTC/ΔQ = .5Q Which of the following is the correct supply function? A) Q S (P) = 2P B) Q S (P) = 4P C) Q S (P) = .25P 2 D) Q S (P) = 2P 1/2 E) Q S (P) = .5P
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answer to question 1 The total cost and marginal cost functions for suppliers are given as follows: TC(Q) =.25Q 2 MC(Q) = ΔTC/ΔQ = .5Q Which of the following is the correct supply function?
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ch3c - Chapter 3 (Supply and Demand), part 3 Monday, June...

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