Demand and supply in the wheat market are given by: QD = 2000 ...

[NClaborn]

Demand and supply in the wheat market are given by:
 
  QD = 2000 - 1000 P and QS = -500 + 1000 P
 
  where Q is millions of bushels and P is price per bushel.
 
  a. Find the equilibrium price and quantity.
  b. Suppose that the government wishes to support farm income and thus sets a price floor of 1.50/bushel. Find the size of the farm surplus.
  c. What is the cost of this program to the government?

Question 2

If the demand curve a monopolist faces is perfectly elastic, then the ratio of the firm's price to the marginal cost is
 
  A) 0.
  B) 1.
  C) 2.
  D) None of the abovethe answer cannot be determined.

[jointhecircus]

Answer to Question 1

a. P = 1.25, Q = 750
b. If P = 1.50, QD = 500 and QS = 1000. The surplus is 500 (million) bushels.
c. 1.50  500 = 750 million.

Answer to Question 2

B