Question

The quantity demanded x of a certain brand of DVD player is 3000/week when the unit price p is $485. For each decrease in unit price of $20 below $485, the quantity demanded increases by 500 units. The suppliers will not market any DVD players if the unit price is $300 or lower. But at a unit price of $525, they are willing to make available 2000 units in the market. The supply equation is also known to be linear. Find the supply and demand equations. Find the equilibrium price and quantity.

Answer 1

Answer:

Demand Equation: q = 15125 - 25p.

Supply Equation: 80p - 24000 = 9q.

Equilibrium Price: $525.

Equilibrium Quantity: 2000 units.

Step-by-step explanation:

To solve this question, first, the demand equation has to be calculated. Let price be on the y-axis and quantity by on the x-axis. It is given that p = $485 when q = 3000 units. This can also be written as (q₁, p₁) = (3000, 485). It is also given that when the price goes down by $20, the quantity increases by 500 units. Therefore, (q₂, p₂) = (3500, 465). Due to the statement "For each decrease in unit price of $20 below $485, the quantity demanded increases by 500 units", the demand function will be linear i.e. a straight line. This is because the word "for each" has been used. Therefore, finding the equation of the demand function:

(p - p₁)/(q - q₁) = (q₂ - q₁)/(p₂ - p₁).

(p - 485)/(q - 3000) = (465 - 485)/(3500 - 3000).

(p - 485)/(q - 3000) = (-20)/(500).

(p - 485)/(q - 3000) = -1/25.

25*(p - 485) = -1*(q - 3000).

25p - 12125 = -q + 3000.

25p + q = 15125.

q = 15125 - 25p. (Demand Equation).

Second, find the supply equation. It is given that the suppliers will not sell the product below or at the price of $300. Therefore, (q₁, p₁) = (0, 300). Also, the suppliers will sell 2000 units if the price is $525. Therefore, (q₂, p₂) = (2000, 525). Since it is mentioned that supply equation is linear, therefore:

(p - p₁)/(q - q₁) = (q₂ - q₁)/(p₂ - p₁).

(p - 300)/(q - 0) = (525 - 300)/(2000 - 0).

(p - 300)/(q) = (225)/(2000).

(p - 300)/(q) = 9/80.

80*(p - 300) = 9*(q).

80p - 24000 = 9q. (Supply Equation).

Equilibrium exists when demand = supply. This means that the demand and the supply equations have to be solved simultaneously. Therefore, put demand equation in supply equation:

80p - 24000 = 9(15125 - 25p).

80p - 24000 = 136125 - 225p.

305p = 160125.

p = $525.

Put p = $525 in demand equation:

q = 15125 - 25p.

q = 15125 - 25(525).

q = 15125 - 13125.

q = 2000 units.

To summarize:

Demand Equation: q = 15125 - 25p!!!

Supply Equation: 80p - 24000 = 9q!!!

Equilibrium Price: $525!!!

Equilibrium Quantity: 2000 units!!!