1.3 Supply and Demand

Question

The market price for a certain product is $5.00 per unit and occurs when 14,000 units are produced. At a price of $1, no units are manufactured and, at a price of $19.00, no units will be purchased. Find the supply and demand equations, assuming they are linear.

Answer 1

W e know the supply curve intersects the demand curve when P= 5.00 and Q = 14,000. We habv another point on the supply curve. WhenP=1 Q= 0 . For the assummed Linear supply curve, rise over run is 4/14,000 = =1/3500 so P^S= 1+ 1/3500 Q

On the demand we have q=0 when P=19 so rise over run is negative = 14/14,000 =1/1000

so P^D= 19-1/1000 Q

Answer 2

Production and supply is directly related to cost and profit as a percentage of cost.  Demand is exclusively related to price, and bears no necessary relation to cost.  This problem doesn't address cost, and doesn't provide an adequate experience universe of data for either cost or demand.  It therefore falls short of a solution.