Office building maintenance plans call for the stripping, waxing, and buffing of

Question

                               Office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to maintenance firms, and both technology and labor requirements are very basic.

Supply and demand conditions in this perfectly competitive service market in New York are:

QS = 2P - 20

(Supply)

QD = 80 - 2P

(Demand)

- where Q is thousands of hours of floor reconditioning per month, and P is the price per hour.

A.

Algebraically determine the market equilibrium price/output combination.

B.

Use a graph to confirm your answer.

For the graph, use prices: 10, 20,30,40,50,60,70,80,90

and Quantities:5,10,15,20,25,30,35,40,45,50,55,60,65

QS = 2P - 20

(Supply)

Explanation / Answer

Market equilibrium is when the quantity supplied equals the quantity demanded, so set the two equations equal to each other: QS=QD 2P - 20 = 80 - 2P Then solve for P: 4P = 100 P = 25 The equlilibrium price is 25. The equilibrium quantity would be the quantity supplied and demanded at this price; substitute 25 for P into each equation. Since they are equal, the answer should be the same. It's a good idea to solve both to make sure that the answer is the same (this helps to eliminate errors in calculation): QS = 2P - 20 QS = 2(25) - 20 QS = 50 - 20 QS = 30 QD = 80 - 2P QD = 80 - 2(25) QD = 80 - 50 QD = 30 QD = QS = 30; this is the equilibrium quantity. For the graph, substitue the prices listed into the supply function, solve for QS for each price; this will give you a series of points to plot; draw a line that connects these points. This will be the supply curve. Do the same thing for the demand function, solving for QD. This will give you the demand curve. These 2 curves will intersect at equilibrium of P=25, Q=30

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