Suppose the market for grass seed can be expressed as Demand: ...

[colton]

Suppose the market for grass seed can be expressed as
 
  Demand: QD = 100 - 2p
  Supply: QS = 3p
 
  At the market equilibrium, calculate the price elasticities of supply and demand. Use these numbers to predict the change in price resulting from a specific tax.

Question 2

If a competitive firm cannot earn profit at any level of output during a given short-run period, then which of the following is LEAST likely to occur?
 
  A) It will shut down in the short run and wait until the price increases sufficiently.
  B) It will exit the industry in the long run.
  C) It will operate at a loss in the short run.
  D) It will minimize its loss by decreasing output so that price exceeds marginal cost.

[yasmina]

Answer to Question 1

At p = 20 Q = 60, e = -2  (20/60 ) = -0.67. n = 3  (20/60 ) = 1.
The change in price resulting from a specific tax = n/(n - e)  tax = 1/1.67  tax = 0.6  tax.

Answer to Question 2

D