The following relations describe monthly demand and supply for a computer suppor

Question

The following relations describe monthly demand and supply for a computer support service catering to small businesses
Qd = 3,000 - 10 P
Qs = -1,000 + 10 P
Where Q is the number of businesses that need services and P is the monthly fee, in dollars.
a. At what average monthly fee would demand equal zero?
b. At what average monthly fee would supply equal zero?
c. Plot the sypply and demand curves
d. What is the equilibrium price/output level?
e. Suppose demand increase and leads to a new demand vurve:
Qd = 3,500 - 10 P
What is the effect on supply? What are the new equilibrium P and Q?
f. Suppose new suppliers enter the market due to the increase in demand so the new supply curve is Q = -500 + 10 P. What are the new equilibrium price and equilibrium quantity?
g. Show these changes on the graph

Explanation / Answer

1. Qd = 3,000-10 P 0 = 3,000 10 P = 3,000 P = 300 2. Qs = -1,000+ 10 P 0 = -1,000+ 10 P -10P = -1,000 P = 100 3. Neither Qs nor Qd has any meaning if negative Scale the Y-axis from 0 -2,000 to 3,000 or 4,000 Neither are negative values of P of interest. Scale the X-axis from 0 to 300-400 Plot 2 points from each equation and draw a straight line between them. 4. Equilibrium price output level: Qd = Qs 3,000 - 10P = -1,000 + 10P 4,000 = 20P P = 200 Qd = Qc = 3000 - 2000 = 1,000 5. Supply would increase to meet demand. 6. New equilibrium point: Qd = Qs 3,500 - 10P = -1,000 + 10P 4,500 = 20P P = 225 Qd = Qc = 3500 - 2250 = 1,250 7. New equilibrium from new supplies: Qd = Qs 3,500 - 10P = -500 + 10P 3,000 = 20P P = 150 Qd = Qc = 3000 - 500 = 2,500 Plot new lines on your graph using different colors for the new conditions.

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