Suppose the market demand and supply functions are Q_D = 1 70 - 2.5P and Q_S = 5

Question

Suppose the market demand and supply functions are Q_D = 1 70 - 2.5P and Q_S = 5P - 115. 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. Determine the equilibrium price and quantity in this market. Select one: P = $40; Q = 70 b. P = $38; Q = 75 P = $38; Q = 105 P = $36; Q = 65 You've researched and found that most firms in the market currently experience costs such that TC = 10 + 60Q - 17Q^2 + 3Q^3. Determine whether or not you should enter this market. Select one: The equilibrium quantity of 75 creates a huge total cost of $1,174,510 and an AVC of $15,660. This is far above the market price of $38, which means that firms would enjoy a significant positive profit. We definitely should enter this market at this time. We should enter the market because the ease of entry suggests that positive profit will be earned at any market price. The $38 price does in fact result in positive profit.

Explanation / Answer

b. P = $ 38 and Q = 75

At equilibrium, Qd = Qs

170 - 2.5P = 5P - 115

170 +115 = 5P + 2.5P

285 = 7.5P

P = $ 38

Q = 5(38) - 115 = 75

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