1. If supply is unchanged, but demand increases, we can conclude that the new eq
ID: 1168360 • Letter: 1
Question
1. If supply is unchanged, but demand increases, we can conclude that the new equilibrium:
a. Quantity must increase but market price may fall, stay the same or even increase.
b. Price must fall but market quantity may fall, stay the same or even increase.
c. Price must increase but market quantity may fall, stay the same or even increase.
d. Quantity must decrease but market price may fall, stay the same or even increase.
e. Both market quantity and market price must increase.
3. One of the following equations represents a supply curve and the other a demand curve. You have to decide which is which. Circle the answer for question three that is the closest to being correct. The equations are:
Q = 150 - 10P Q = 100 + 5.6P
What quantity will suppliers willingly supply if market price is found to be $9?
60.0 111.0 118.0 150.0 163.0 (all close, but approximate)
4. Here is a function that is either a demand function or a supply function (but not both):
A change occurs so that the following function now represents the situation:
We can conclude that (circle the appropriate conclusion on the answer sheet).
a. demand has increased
b. demand has decreased
c. supply has increased
d. supply has decreased
e. quantity supplied has decreased
f. quantity demanded has decreased
Circle the correct formula for marginal revenue (MR)
a. MR = 2 -.4Q b. MR = 3 - .5Q e. MR = 1 - .167Q
c. MR = 1.5 - .2Q d. MR = 1 - .333Q f. MR = 1 - .083Q
6. Circle your choice for the quantity that will maximize total revenue for the function in 5 (above)
1 3 5 6 7.5 12
Explanation / Answer
(1) Correct option (e)
Ceteris paribus, if demand increases, demand curve shifts rightward and intersects supply curve at a higher price and higher quantity.
(3)
Q = 150 - 10P is the demand curve. A demand curve slopes downwards, so its slope (P-coefficient) is negative (= -10 here).
Q = 100 + 5.6P is the supply curve. A supply curve slopes upward, so its P-coefficient is positive (= 5.6 here).
When P = 9, Q (supply) = 100 + (5.6 x 9) = 150.4
(4) Correct option (c)
This function has a positive P-coefficient, so it must be a supply curve.
The change indicates that, vertical intercept of the supply curve has decreased from 12 to 6. This means, supply curve has shifted downward, indicating supply has increased.
(5) Correct answer (f)
If Q = 12 - 12P,
Then 12P = 12 - Q
P = (12 - Q) / 12 = 1 - 0.0833Q
Total revenue, TR = P x Q = Q x (1 - 0.0833Q) = Q - 0.0833Q2
Marginal revenue, MR = dTR / dQ = 1 - 0.0833Q
(6) For revenue to be maximized,
dTR/dQ = 0
Or, 1 - 0.0833Q = 0
0.0833Q = 1
Q = 1 / 0.0833 = 12
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