Suppose the market demand and supply functions are QD = 180-1.5P and Qs = 3.5P +

Question

Suppose the market demand and supply functions are QD = 180-1.5P and Qs = 3.5P + 40. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product. a. Determine the equilibrium price and quantity in this market. b. You've researched and found that most firms in the market currently experience costs such that TC = 15 + 450-10Q2 + 1.5Q, Determine whether or not you should enter this market. Use graphs to support your answer. C. Due to unforeseen delays, you don't enter the market. However, a year later the market supply has changed to Qs = 3.5P + 10 . Are you surprised at this shift in supply? d. Given the new supply conditions, determine whether or not you should enter the market.

Explanation / Answer

a) The equilbruim price and quantity in the market is where demand is equal to supply.

180 -1.5P = 3.5P + 40

140 = 5P or P = $28

and Q = 180 - 1.5 * 28 = 180-42 = 138

b) TC = 15 +45Q - 10Q2+1.5Q3

TC = 15 + 6210 - 190440 + 3942108 = 3757893

TR = 138 *28 = 3864

profit / loss = -3754029

no, we should not enter the market because, the existing firm are having loss in this industry .

c) 180-1.5P = 3.5P +10

P = $34

and Q = 180-1.5(34) = 129

TR = 129*34

no we are not surprise of this supply curve, because of the loss in this firm, many existing firm exit the industry and decrease the supply at each price level. which increase the equilbruim price and decrease equilbruim quantity.

D) no, we should not enter the market, because there is a still a loss in this market.

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