P =1400 - Qd
and the supply function is
P = 200 + 5Qs
where Qd and Qs are quantities demanded and supplied respectively and P is price.
(i) Plot the demand and supply curves on a scale diagram.
(ii) Calculate the equilibrium price and quantity. Explain how this equilibrium is achieved.
(iii) Define subsidy. Suppose the government imposes a subsidy of $60, compute the new equilibrium price and quantity. Explain the effects of a subsidy.
(iv) Calculate the total payment made by the government to the producer in the form of a subsidy.
(v) Quantify the share of the subsidy to the consumer and the producer.
(vi) Define a production quota. Using the original demand and supply curve, assume the government imposes a quota of 100 units. Investigate and quantify the likely effects of the new price.
15. The demand and marginal cost curves of a monopolist are estimated by the following equations:
P = 500 – 0.40 Qd
MC = 60 + 0.20 Q
i) What is the equation for MR?
(ii) Calculate algebraically the profit-maximizing price and output.
(iii) Illustrate diagrammatically the profit-maximizing price and output.
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