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AEM 4150
Price Analysis
Fall Semester 2009
Homework Assignment 6
Suggested Solutions
Question 1
(a)
We have first drawn the retail demand, D
r
(i.e. the demand of the consumers) and the
supply of the producers, S
f
(i.e. the farmers).
(b)
Now we calculate the derived demand and supply.
The demand which the potato producers face can be calculated by setting the
price for the farmers equal to the price at retail level minus the marketing margin,
or:
P
f
= P
r
 M
Substitute equations for P
r
and M to obtain farm level demand,
D
f
.
P
f
= 50  0.75Q – 32 + 0.48Q
P
f
= 18  0.27Q
Similarly, the supply at a retail level can be obtained by equating the price at the
retail level to the price at the farm level plus the marketing margin, or:
P
r
= P
f
+ M
Substitute equations for P
f
and M to obtain retail supply,
S
r
.
P
r
= 20 + 1.43Q + 32  0.48Q
1
P
Q
D
r
S
f
D
f
Q* = 22.35
Pr* = 33.2375
S
r
Pf* = 11.9605
M
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r
= 12 + 0.95Q
These equations are plotted on the graph in part a.
(c) The equilibrium prices can be obtained by setting the quantity demanded equal to the
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 '07
 KAISER,H.M.

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