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2009Problem_Set_5 v2

# 2009Problem_Set_5 v2 - AEM 4150 Price Analysis Fall...

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AEM 4150 Price Analysis Fall Semester 2009 Homework Assignment 5 This assignment is due at the beginning of class on Tuesday, October 6, 2009. Total 13 points 1. Corn farmers have a mandatory demand expansion program where all farmers pay a certain amount to fund a promotion program for corns. You have estimated the following market supply and demand functions for corns, which includes a demand shifter for generic corn promotion: Q d = 60 - 0.30P + 0.004 INC + 0.0000008 PROM Q s = 5P where: Q d Quantity demanded of corns, measured in 10,000 bushel units P Retail price of corns measured in \$ per bushel I Per capita consumer disposable income PROM Total generic promotion costs Q s Quantity supplied, measured in 10,000 bushel units When you answer the question, make sure you use the right units! (a) Assume that in 2008, INC = \$38,000 and PROM = \$30,000,000. Calculate the equilibrium price, quantity, total industry revenue, and the total industry revenue minus promotion costs. (2 points) (b) Calculate the equilibrium price, quantity, total industry revenue, and industry revenue net of promotion costs if the industry spent zero on promotion, i.e., PROM=0.

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