Question

Suppose the demand and supply functions for product X are as follows: QXD=100-.5PX-.2PC+.8PS+.0005Y+.0004A QXS=25+.5PX where, PC is the price of product C, which is currently $25; PS is the price of product S, which is currently $80; Y is the level of per capita income, which is currently $20,000; and A is monthly advertising, which is currently $15,000. What is the equilibrium market quantity of product X?

Answer 1

125

Step-by-step explanation:

QXD =100 - 0.5PX - 0.2(25) + 0.8(80) + 0.0005(20,000) + 0.0004(15,000)

QXD =175 - 0.5PX

QXS=25+0.5PX

At equilibrium,

QXD = QXS

175 - 0.5PX = 25+0.5PX

175 +25 = 0.5PX + 0.5PX

PX = 200

QX =25+0.5(200) = 125