. Consider the demand and supply curves in Q.5.
Demand Curve is: Qd = 25 - P, and its Market Supply Curve is: Qs = 10 + 2P
Assume market demand increases and that the new demand curve is now Qd = 50 – P. Further assume the government provides to each firm, a subsidy of $40 per unit of output produced. Thus the supply curve now becomes Qs = 10 + 2(P+40).
Develop a graph for the new demand and supply curves. Then use the graph to find the new equilibrium price and quantity.
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