Question

Suppose the market for cars has two segments, businesses and home users. The demand curve for cars by businesses is P = 70 − 5Q_b, where Q_b is the quantity of cars demanded by businesses with the price is P. The demand curve for cars by home users is P = 40−2Q_h, where Q_h is the quantity of cars demanded by home users when the price is P. Both businesses and home users will never demand negative amounts of cars, so for sufficiently high prices, the demand will be 0.

(a) Graph the demand curves for each segment, and draw the market demand curve for cars.

(b) Write the equation for the demand curve for all prices P ≥ 0 (make sure that it matches with part (a)).

(c) When the price is P = $10, what is the consumer surplus for businesses, home users, and the market as a whole.

Answer 1