Assignment 2 Essay

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Assignment 2 Office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to office 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. Answer: Market equilibrium price is the price that actually exists in the market or toward which the market is moving where the quantity demanded by consumers equals the quantity supplied by producers. QD = QS 80 - 2P = 2P – 20 -80 + 80 – 2P = 2P – 20 – 80 -2P = 2P – 100 -2P – 2P = -100 -4P = -100 -4P / -4 = -100 / -4 Market equilibrium price/output combination = P = $25 QS = 2P – 20 QD = 80 - 2P QS = 2(25) – 20 QD = 80 – 2(25) QS = 50 – 20 QD = 80 - 50 QS = 30 QD = 30 Equilibrium Quantity = QD = QS = 30 B. Use a graph to confirm your answer. Answer: Graph included as separate document 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 The figure below shows a firm in a perfectly competitive market: a. Find the price below which the firm will go out of business. Answer: A perfectly competitive firm will shut down if the market

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