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The equation of a demand function for a tourist attraction in Alaska is given by Q=3000-20P,...

  1. The equation of a demand function for a tourist attraction in Alaska is given by

Q=3000-20P, where Q is the number of helicopter flights, demanded daily.

  1. What is the change in quantity demanded when the price increases by $1.00?

Q =3000-20P

P = 0, Q = 3000

P = 1, Q = 3000 - 20 = 2980

The price increases by $1, the change in quantity demanded = 3000 - 2980 = 20 units.

  1. What is the quantity demanded when P=0? What does this tell you in words?

Q =3000-20P,

When P = 0, Quantity demanded = 3000 units.

The maximum quantity demanded is 3000 units.

  1. What is the price when quantity demanded =0? What does this tell you in words?

Q =3000-20P

Q = 0, Price: 20P = 3000 - Q

P = (3000 - 0)/20 =150

The minimum price the seller must charge in order to sell is $150

  1. Determine the quantity demanded of helicopter flights when the P= $125.

P= $125, the quantity demanded: Q =3000-20P

Q = 3000 - 20 (125)

Q = 3000 - 2500

Q = 500 units

  1. Plot your demand function with the price on the vertical axis indicating the intercepts and your answer to part d.

The demand function with a price on the vertical axis indicating the intercepts and my answer to part d where the price = $125 and the quantity demanded = 500 units.

  1. Now assume that supply is given as P=$125 +0.10Qs. Plot this on your graph above indicating the minimum selling price.

Below is the supply function with a price on the vertical axis indicating the minimum selling price. The supply function is P=$125 +0.10Qs, so the minimum selling price is when Qs = 0, P = $125 + 0 = $12

  1. Determine the market equilibrium price and equilibrium quantity and show this on your graph.
  1. If the seller charges a price of $100 will there be a surplus or shortage? Of how much? Show this on your graph.

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Homework Answers

Answer #1

Since parts g and h are not answered, it is assumed the student is looking for answers to parts g and h.

G)

At equilibrium, demand = supply

That is,

3000-20P = 10P- 1250

4250 = 30P

P* = $141.67

Q* = 166.67 units

H)

At P = $100,

Qd = 3000-20(100) = 1000 units

Qs = 10(100) - 1250 = -250

Since Qd > Qs, there is a shortage at this price

Shortage = 1000-(-250) = 1250 units

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