SHORT PROBLEMS
1. Consider the market for a Procter and Gamble biodegradable detergent. Suppose that market demand is QD = 120 3P, and market supply is QS = 50 + 2P, where P is the price per case and Q is the quantity in thousands per week.
a. Find equilibrium quantity and price.
b. What is the value of consumer surplus (CS) and producer surplus (PS) at equilibrium?
c. If each case of detergent were sold at $30, determine the amount of the shortage or surplus that would result.
2. In the competitive market for organic corn, market demand is QD = 340 2P and market supply is QS = 100 + 4P, where P is the price per bushel, and Q is market output in thousands of bushels. Each individual farmer faces a marginal cost function of MC = 10 + 3q, where q is the single farmers output level in thousands.
a. What is the equation for the demand (which is also MR) faced by the individual farmer?
b. Based on your answer to part (a), find the profit-maximizing output level for each farmer.
c. At an output level of 8 thousand bushels, explain in terms of both marginal profit and total profit why the individual farmer should expand production.