Homework4 - Homework#4 Due Date Wednesday April 13th Note...

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Homework #4 Due Date: Wednesday, April 13th Note: Only one randomly selected question will be graded. Question 1 Consider a bottled water market which is a perfectly competitive market. The whole market demand function is Q = 60000 - 10000 P , and the supply function is Q = 20000 P . Azarka is producing the bottled water which is exactly same with other firms’ products. At first, Azarka invested $100 to build a bottling factory. And then the cost to add n th product is $0 . 01 × n . That is, to produce the first bottle of water costs $0 . 01, to produce the second bottle of water costs $0 . 02, and to produce the 100th bottle of water costs $1. If you produce 3 bottles of water, the total cost is $100 (cost for a factory) +0 . 01 (cost for the first one) +0 . 02 (cost for the second one) +0 . 03 (cost for the third one) = $100 . 6. (a) Find the market equilibrium. (b) If Azarka sets its price as $2 . 5, what is the quantity demanded for Azarka? If Azarka sets its price as $1 . 5, what is the quantity demanded for Azarka? (Hint: when P = 0, the quantity demanded in the whole market is Q = 60000. This is a
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