Consider the market for orange juice. In this market, the supply curve is given by QS = 100PJ −20PO and the demand curve is given by QD = 1000−150PJ +100PC, where J denotes orange juice, O denotes Orange, and C denotes coffee.
1) Assume that PO = 10 and Pc = 8. Calculate the equilibrium price and quantity in the Orange juice market. (1 mark)
2) Suppose that a poor harvest season raises the price of oranges to Po = 15
a) Is it possible to reach a market equilibrium if the price of orange juice PJ remains unchanged? Why? How much quantity of orange juice will finally be exchanged on the market? (2 marks)
b) Find the market price necessary to restore equilibrium. Deduce the equilibrium quantity of orange juice. (2 marks)
3) Draw a graph to illustrate your answers. (1 mark)
Answer:-
Q2
Suppose the price elasticity of demand for the market of mobile phones is 0.90.
a. If all mobile-phone companies simultaneously increased their prices, will total revenue in the industry increase or decrease? (1 mark)
b. If a single mobile-phone company increased its price, would you expect the company’s total revenue to increase or decrease? Explain. (2 marks)
c. Suppose that the price in the market is initially $10 and the quantity demanded is 100 units. If the price in this market increases by 10%, what will be the percentage change in the quantity demanded? (2 marks)
Answer:-
Q3
If you have SAR 50,000 to start a new business, you can earn 10 percent interest on money in a bank account. Your business expenses are SAR 22,000 per year on rent, SAR 18,000 per year on supplies, and SAR 5,000 per year on part time help. As for your personal expenses, your apartment costs you SAR 12,000 per year and your personal bills are an extra SAR 6,000 per year. What is your opportunity cost of running the business? (4 marks)
To find the equilibrium price and quantity in the orange juice market, we need to set the supply and demand equal to each other and solve for the equilibrium quantity and price.
First, we can substitute the given values for PO and PC into the supply and demand equations to get:
Supply: QS = 100PJ – 20(10) = 100PJ – 200 Demand: QD = 1000 – 150PJ + 100(8) = 1000 – 150PJ + 800
Now, we can set the supply and demand equal to each other and solve for the equilibrium quantity and price:
100PJ – 200 = 1000 – 150PJ + 800 250PJ = 1000 PJ = 4
Substituting this value back into either the supply or demand equation, we can find the equilibrium quantity:
Supply: QS = 100(4) – 200 = 200 Demand: QD = 1000 – 150(4) + 800 = 200
Therefore, the equilibrium price in the orange juice market is $4 per gallon, and the equilibrium quantity is 200 gallons.
Question 2:
To find the new equilibrium quantity, we can substitute the new value for PO (15) into the supply curve equation and solve for the equilibrium quantity:
QS = 100PJ – 20(15) = 100PJ – 300
If we set this equation equal to the demand curve equation and solve for the equilibrium quantity, we get:
100PJ – 300 = 1000 – 150PJ + 800 250PJ = 1000 PJ = 4
Substituting this value back into the supply curve equation, we find the equilibrium quantity:
QS = 100(4) – 300 = 100
Therefore, the new equilibrium quantity in the orange juice market is 100 gallons.
Get professional HOMEWORK help here at an affordable price
Question 3:
To calculate the opportunity cost of running the business, we need to find the total annual expenses for the business and subtract that from the total amount of money that you have to start the business. The total annual expenses for the business are the rent, supplies, and part-time help expenses, which add up to 22,000 + 18,000 + 5,000 = 45,000 SAR per year.
Subtracting the total annual expenses from the total amount of money that you have to start the business, we get:
50000 – 45000 = 5000 SAR/year
This is the opportunity cost of running the business, or the amount of money that you would have earned if you had invested the money in a bank account instead.
Note that this calculation does not include your personal expenses, such as the cost of your apartment and personal bills. These expenses are not directly related to the business and are not considered in the opportunity cost calculation.