Question

5. John the plumber has the following weekly demand for repairs by his business: Q = 2,000 – 10(P) Q = quantity of repairs demanded by customers per week. P = average price per repair. John chooses the price to charge to his customers (cause). The result (effect) will be the total number of repairs his customers want per week.

A. Draw the demand curve faced by John the plumber. Numerically label its two end points.

B. Create the table of numbers: P Q TR MR P = average price per repair. You may skip numbers for price changes by $10 at a time. TR = Total Revenue = PQ MR = Marginal Revenue = (change in TR)/(change in Q) Draw the MR curve on the diagram, as well/

C. The MC (Marginal Cost) to John per repair is $20. What price (P) will be charged per repair, and how many repairs (Q) per week? Show it on your diagram with solved numbers.

D. Label the Consumer Surplus on your diagram. Define Consumer Surplus, as well.

Answer 1

Q = 2000 - 10P

A) The horizontal intercept is:

When P = $0, Q = 2000 units

The vertical intercept is:

When Q = 0 units, P = $200

The diagram is given below:

B) The table is shown below:

P	Q	TR	MR
0	2000	0	-
10	1900	19000	1900
20	1800	36000	1700
30	1700	51000	1500
40	1600	64000	1300
50	1500	75000	1100
60	1400	84000	900
70	1300	91000	700
80	1200	96000	500
90	1100	99000	300
100	1000	100000	100
110	900	99000	-100
120	800	96000	-300
130	700	91000	-500
140	600	84000	-700
150	500	75000	-900
160	400	64000	-1100
170	300	51000	-1300
180	200	36000	-1500
190	100	19000	-1700
200	0	0	-1900

C) Given, MC = $20

The equilibrium will occur at a point where MR curve cuts the MC curve.

The demand function is given by:

Q = 2000 - 10P

P = 200 - (Q/10)

TR = P*Q = 200Q - (Q²/10)

and MR = dTR/dQ = 200 - (Q/5)

Now, MR = MC

200 - (Q/5) = 20

(Q/5) = 180

Q = 900 and P = 200 - (900/10) = 110

Thus, the P = $110, and Q = 900 units.

D) Consumer Surplus is the difference between the willingness to pay and the actual payment. It is represented by the area above the price line and below the demand curve.

The consumer surplus is represented by the shaded area in the diagram above.