Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees...

Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees for guitar production costs $1 per tree. This economy may access 1000 additional trees (perhaps existing in the outskirts of the town) but it costs $3 to use each of those trees. Assume 5 trees are needed to produce one guitar.

Questions : (1) What is the Supply curve for guitar production? You may answer with a fully labeled picture.

(2) If the demand function for guitars is D(p)=220-2p, what is the equilibrium price and quantity in the market for guitars?

(3) Suppose the government wants to incentivize people to play more guitar, so they place a subsidy of $5 per guitar. That is, if the consumer pays p, the firm gets p+5.

Expert Solution

Lets genaralize the information from question,

actual quantity = 1000, actual price = $1 per tree

new quantity = 2000 ( 1000+ 1000 additional) , new price = $3 per tree

to make one guitar, 5 trees are needed, means 5 tress = 1 product

in following pictures, answers given with graphical representation.

I hope these answers cleared the given parts of question.

supply curve is a basic curve that we can draw based on assumption values also.

Rahul Sunny answered 1 year ago

Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees...

Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees for guitar production costs $1 per tree. This economy may access 1000 additional trees (perhaps existing in the outskirts of the town) but it costs $3 to use each of those trees. Assume 5 trees are needed to produce one guitar. Questons : (1) What is the Supply curve for guitar production? You may answer with a fully labeled picture. (2) If the demand...

Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees...

Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees for guitar production costs $1 per tree. This economy may access 1000 additional trees (perhaps existing in the outskirts of the town) but it costs $3 to use each of those trees. Assume 5 trees are needed to produce one guitar. Questons : (1) What is the Supply curve for guitar production? You may answer with a fully labeled picture. (2) If the demand...

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Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees...

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