3: Use the following demand and supply equations for an \"Amazon Echo to answer

Question

3: Use the following demand and supply equations for an "Amazon Echo to answer all parts of this question. Os-0.1P-5 A. Predict the firm's sales if they set price $170. Show your work B. If the price of the Amazon Echo was $300, then how many units would the firm be willing to produce and make available for sale? Show your work. C. Determine the equilibrium price and equilibrium quantity for this market. Show your work. If the firm charged a price of $80 would there be a surplus or shortage of Amazon Echos? of how much?

Explanation / Answer

Qd = -0.2P + 40

Qs = 0.1P - 5

A) Set Price = $170

Qd = -0.2(170) + 40

Qd = 6

Qs = 0.1(170)- 5

Qs = 12

So firm's sales will be 6 units because firm is producing 12 units but demand is only for 6 units hence firm's sales will be only 6 units.

B) Price = $300

Qd = -0.2(300) + 40

Qd = - 20

Qs = 0.1(300)- 5

Qs = 25

This shows that firm will be able to produce 25 but cannot sale as there is negetive demand.

C) Equilibrium Price and Equilibrium Quantity

Qd = -0.2P + 40

Qs = 0.1P - 5

Now equate both equations

-0.2P + 40 = 0.1P - 5

45 = 0.3P

P = 150 (Equilibrium Price)

Put P in any of the equations

Qd = -0.2(150) + 40 = 10 (Equilibrium Quantity)

Qs = 0.1(150) - 5 = 10

D) Price = $80

Qd = -0.2(80) + 40

Qd = 24

Qs = 0.1(80)- 5

Qs = 3

There will be shortage of Amazon Echo as demand is for 24 and there are only 3 available. Hence the will be shortage of Amazon Echo by 21.

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