A manufacturer grows oranges which are used to produce orange juice and orange marmalade. One orange gives 1 unit of orange juice AND 2 units of marmalade. Assume that the cost function of growing oranges is given by C(q)=0.05 q2 (and assume that there are no further costs of production). Demand for orange juice is given by qJ = 25 – 50 pJ and demand for marmalade is given by qM = 100 – 50 pM where pJ and pM denote the prices for orange juice and marmalade respectively. How many oranges should the manufacturer grow and what prices should she set for marmalade and juice? Assume that disposal is free.
A manufacturer grows oranges which are used to produce orange juice and orange marmalade. One orange gives 1 unit of orange juice AND 2 units of marmalade. Assume that the cost function of growing oranges is given by C(q)=0.05 q2 (and assume that there are no further costs of production). Demand for orange juice is given by qJ = 25 – 50 pJ and demand for marmalade is given by qM = 100 – 50 pM where pJ and pM denote the prices for orange juice and marmalade respectively. How many oranges should the manufacturer grow and what prices should she set for marmalade and juice? Assume that disposal is free.
For unlimited access to Homework Help, a Homework+ subscription is required.
Related textbook solutions
Related questions
Look at the two tables below, which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated changes in supply and demand. Assume that the only market participants are those listed by name in the two tables.
Consumers | Producers | |||||
Person | Maximum Price Willing to Pay |
Actual Price (Equilibrium Price) |
Person | Minimum Acceptable Price | Actual Price (Equilibrium Price) |
|
Bob | $16 | $10 | Carlos | $5 | $10 | |
Barb | 14 | 10 | Courtney | 6 | 10 | |
Bill | 13 | 10 | Chuck | 7 | 10 | |
Bart | 12 | 10 | Cindy | 8 | 10 | |
Brent | 11 | 10 | Craig | 9 | 10 | |
Betty | 10 | 10 | Chad | 10 | 10 |
a. Given the equilibrium price of $10, what is the equilibrium quantity given the data above?
Equilibrium quantity = ...... bag(s)
b. What if, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays?
If all the buyers' free ride, what will be the quantity supplied by private sellers?
c. Assume that we are back to talking about bags of oranges (a private good), but that the government has decided that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $3-per-bag tax on sellers.
What is the new equilibrium price? $
What is the new equilibrium quantity?
....bag(s)
If the new equilibrium quantity is the optimal quantity, by how many bags were oranges being overproduced before?
.....bag(s)
Questions 1 and 2 do not need to be answered, they are just there for questions 3 and 4. Only bolded need answered.
1.Graph the following market demand function Q = 300-25P, plotting P (prices) on the vertical axis, and Q (quantity), on the horizontal axis. Next, show how much quantity demanded changes when the price of the good given by this demand function increases from $5 to $7?
2.Consider that the demand curve in part (a) above represents the market demand for a steak burger meal in a local area. This local area has three fast-food restaurants that exclusively produce these meals, and they are owned by Sam, Sony, and Sheila. Their supply curves for a steak burger meal are given as follows:
Sam's Eatery |
Sony's Hot Meals |
Sheila's "To Go" |
|||
Price ($) |
Quantity |
Price ($) |
Quantity |
Price ($) |
Quantity |
2.50 |
0 |
2.50 |
5 |
2.50 |
5 |
5.00 |
15 |
5.00 |
20 |
5 |
15 |
8.00 |
28 |
8.00 |
42 |
8.00 |
30 |
10.00 |
35 |
10.00 |
50 |
10.00 |
40 |
12.50 |
55 |
12.50 |
75 |
12.50 |
60 |
15.00 |
80 |
15.00 |
100 |
15.00 |
80 |
3.Consider the exercise in Question 2. The government now declares that steak burger meals in that locality should sell for $5.00. Given the correct answers in Question 1(b), would this represent a price ceiling or a price floor? Explain. Further, determine what would be the quantity of shortage or surplus that would exist in this market, and be explicit whether it is a surplus or a shortage and explain why.
4.Given the readings you looked at on price controls, what other problems typically arise, besides shortages or surpluses, when price controls are put in place within well-functioning markets?