Office building maintenance plans call for the stripping, waxing, and buffing of
ID: 1254132 • Letter: O
Question
Office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to maintenance firms, and both technology and labor requirements are very basic.Supply and demand conditions in this perfectly competitive service market in New York are:
QS = 2P - 20
(Supply)
QD = 80 - 2P
(Demand)
- where Q is thousands of hours of floor reconditioning per month, and P is the price per hour.
A.
Algebraically determine the market equilibrium price/output combination.
B.
Use a graph to confirm your answer.
For the graph, use prices: 10, 20,30,40,50,60,70,80,90
and Quantities:5,10,15,20,25,30,35,40,45,50,55,60,65
The figure below shows a firm in a perfectly competitive market:
a. Find the price below which the firm will go out of business.
b. What is the firm’s long run supply curve?
Explanation / Answer
1. A. First, solve for equilibrium price and quantity. Do that by setting Qs=Qd. 2P-20=80-2P -> put allthe P's to one side, the round numbers to the other. Thus 4P = 100 -> solvefor P by dividing by 4 on both sides Thus P =25 and 25 is yourequilibrium price Solve for Q by plugging P into eitherequation Qs=2(25)-20=50-20=30 Qd=80-2(25)=80-50=30 Thus Q=30 The equilibrium Price and Quantity are $25/hr and 30,000 hoursper month B. Do a quick demand and supply schedule for the givenprices. Just plug in the given prices to the equation. Price Qd Qs 10 60 0 20 40 20 30 20 40 40 0 60 50 -20(omit) 80 60 -40(omit) 100 70 -60(omit) 120 80 -80(omit) 140 90 -100(omit) 160 Now, plot those points on a graph, and you'll see the linesintersect at P=25 and Q=30.Related Questions
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