. John Barks owns Barks Computer Screens Inc. and wants to identify the supply a

Question

.

John Barks owns Barks Computer Screens Inc. and wants to identify the supply and demand for screens in his market. The company can produce large screens called Wides or small screens called Squares. The production processes are interchangeable, and production can be adjusted depending on market conditions. The demand for both products is highly elastic in terms of price elasticity, and customers perceive the two products as close substitutes for each other.

Barks needs some help in completing his market analysis. Therefore, he hires you as a consultant and provides you with the results of his analysis. He has found that the functions for supply and demand in his market are:

Qd =    - 1650 - 35P + 12.5Pw + 0.1Y
Qs =    - 120 + 75P - 30Pw + 13PL + 12R

Where:

Qd = Demand
Qs = Supply
Pw = Average price of Wides
Y = Income in his market
PL = Price of labor
R = Is the average humidity level measured in hums

Create a report answering the following questions:

Create your report in a 2- to 3-page Microsoft Word document.

Explanation / Answer

for part 1 and 2

Qd = 157 - 35P + 12.5Pw + 0.1Y
Qs = -120 + 75P - 30Pw + 13PL + 12R

Where:

Qd = Demand
Qs = Supply
Pw = Average price of Wides
Y = Income in his market
PL = Price of labor
R = Is the average humidity level measured in hums

1)

When

Pw = $6.00

Y = $1,600.00

PL = $9.00

R = 25

Qd = 157 - 35P + 12.5*6 +0.1*1600 = 392 - 35P

so Qd = 392 - 35P (Demand Curve)

Qs = -120 + 75P - 30*6 + 13*9 +12*25 = 117 +75 P ;

so Qs = 117 + 75P (Supply Curve)

2)

When P = $1.75

Qd = 330.75 ;

Qs = 248.25 ;

So Qd > Qs ...hence Demand is greater than supply

so Shortage.

Shortage = Qd - Qs = 82.5

When P = $2.10,

Qd = 318.5

Qs = 274.5

Qd > Qs ...hence Demand is greater than supply

so Shortage.

Shortage = Qd - Qs = 44

when P = $2.70.

Qd = 392 - 35*2.7 = 297.5

Qs = 117 + 75*2.7 = 319.5

Qs >Qd ...Supply greater than Demand

So Excess or Surplus

Surplus = Qs - Qd = 22

3) Equilibrium

Qd = Qs

392 - 35P = 117 + 75P

P = $2.5

Q = 304.5

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